Bank of Canada holds key rate for first time in a year

The Bank of Canada is holding its key interest rate steady for the first time in a year, sticking to its wait-and-see approach even as its U.S. counterpart charts a more aggressive path. The central bank said Wednesday that it has decided to hold its key rate at 4.5 per cent based on its assessment of recent economic data. “Governing council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return to the two per cent inflation target,” the Bank of Canada said.
The central bank rapidly raised its key interest rate over the last year, bringing it from near-zero to the highest level since 2007.
In January, the Bank of Canada announced an eighth consecutive rate hike and said it expects to maintain its key interest rate if economic developments stay broadly in line with its forecasts.
Economists were widely expecting the Bank of Canada to hold its key interest rate Wednesday, noting it would be too soon to raise rates again. The economy has also generally moved in the right direction for the central bank, which is aiming to slow economic activity.
“There really were no significant surprises here,” said Douglas Porter, BMO’s chief economist.
The Bank of Canada’s policy is starting to diverge from the U.S. Federal Reserve, which signalled recently it plans to continue raising interest rates. U.S. monetary policy does have implications for Canada, said Stephen Gordon, an economics professor at Laval University. Higher interest rates in the U.S. could attract investment there, weakening the Canadian dollar and raising prices of imports for Canada.
But Gordon cautioned “it’s not an automatic thing of, the (Bank of Canada) has to follow the Fed.” Recent data showed inflation in Canada slowed to 5.9 per cent in January while the economy posted no growth in the fourth quarter.
The central bank noted “the labour market remains very tight,” but said it expects it to ease and for wage growth to moderate.
Source: aljazeera.com