Bank of Canada holds key lending rate at 5% for sixth consecutive time

In its third interest rate announcement for 2024, the Bank of Canada chose to hold its overnight lending rate at its current level of 5%. This marks the sixth consecutive hold to the rate since July of 2023.

In its scheduled interest rate announcement for April 10th, Canada’s central bank stated that it would hold the policy rate at 5% in an effort to “continue to normalize the Bank’s balance sheet.”

The Central Bank noted that while the consumer price index and core inflation have eased in recent months, overall inflation and economic risks remain. The Bank said that it will be looking out for evidence that the downward trend in inflation is sustained before moving to make a cut.

Tiff Macklem, Governor of the Bank of Canada, stated in a press conference following the announcement that the Bank does not wish to leave monetary policy this restrictive for longer than its needs to, but cautioned that lowering the policy rate prematurely could jeopardize the progress made to bringing inflation down.

“Based on our forecast and the risks, Governing Council decided it was appropriate to maintain the policy rate at 5%,” said Macklem. “We also concluded that, overall, the data since January have increased our confidence that inflation will continue to come down gradually even as economic activity strengthens. Our key indicators of inflation have all moved in the right direction and recent data point to a pickup in economic growth.”

Is an interest rate cut in sight?

Economists expect that the first chop to rates could come in June. As many as 100 basis points could be cut from the key lending rate this year, experts predict.

Macklem noted that while the Bank is seeing economic factors trend in the right direction for a rate cut, more time is needed to ensure inflation is truly coming under control.

“I realize that what most Canadians want to know is when we will lower our policy interest rate. What do we need to see to be convinced it’s time to cut? The short answer is we are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained,” said Macklam. “The further decline we’ve seen in core inflation is very recent. We need to be assured this is not just a temporary dip.”

The Bank of Canada will make its next announcement on Wednesday, June 5th, 2024.

Read the full April 10th report here.