Bank of Canada Holds Interest Rate at 4.5% As Inflation Cools

Did The Bank of Canada Raise Interest Rates?

Once every quarter the Bank of Canada updates its policy and provides an economic outlook. Historically, most Canadian’s don’t pay a lot of attention to these announcements. But ever since inflation soared to

40-year highs last summer, investors and Canadians alike have been paying close attention to what the Bank of Canada is doing to tame persistently high inflation.

On April 12, the central bank announced it was holding its interest rate steady at 4.5%. The move was widely expected by economists.

The last time the Bank of Canada met back in January it hiked its interest rate 25 basis points to 4.5%, the highest level since 2007. This represented the eighth consecutive rate hike. At the time, the Bank of Canada said it expected inflation to decline significantly, falling to three percent in mid-2023 and two percent by the end of 2024.

If inflation does start to come down as expected, the central bank said it would hold its benchmark rate at the current level. And that’s exactly what happened. The Bank of Canada maintained its interest rate at 4.5% while the impact of the last interest rate hike works its way through the economy.

The Bank of Canada slashed its key lending rate in the early days of the pandemic in an effort to juice the economy and stave off an economic collapse. After inflation soared to its highest level in decades though, the Bank of Canada began aggressively raising its rates. Some say it waited too long to take action, which is why there have been so many aggressive rate hikes.

Is the Canadian Inflation Rate Going Down?

Regardless of which side of the fence you sit, the rate hikes are having their desired effect. Last summer, inflation peaked at 8.2%. This past February, inflation cooled to 5.2%. Data on Canada’s inflation rate is set to be released in the coming days. Most analysts expect it to show that inflation has cooled to around four percent.

That doesn’t mean its all downhill from here with regards to interest rates. The Bank of Canada has said there is still more work to do and that additional rate hikes could be in the cards if the economy does not slow down enough to lower inflation numbers even further.

Investors may be cheering the idea of lower interest rate hikes later this year, but Bank of Canada governor Tiff Macklem warned “that it doesn’t look like the most likely scenario to us.” In a nutshell, there are no cuts coming in 2023. While this suggests Canada will avoid a difficult recession, it does mean inflation is tougher to get under control than previously though. This means Canadians should expect interest rates to stay high for a longer period of time.

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