Bank of Canada holds the line on interest rates

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For the fifth straight time, the Bank of Canada is holding its benchmark interest rate at five per cent.

The news was announced on Wednesday morning by the bank’s governor, Tiff Macklem.

Inflation has cooled significantly from a high of 8.1 per cent a year-and-a-half ago, largely due to the higher cost of borrowing money, which has slowed spending. The latest data for New Brunswick showed inflation has fallen to 2.3 per cent.

But the bank is still struggling to get inflation down to its two per cent benchmark.

Many economists correctly predicted the bank’s latest move, and believe the benchmark interest rate won’t drop until at least June.

“The assessment … is that we need higher interest rates time to do their work,” Macklem said at a press conference. “Today’s decision reflects … that a policy rate of five per cent remains appropriate. It is too early to consider lowering the policy interest rate.”

“In Canada, the economy grew in the fourth quarter by more than expected, although the pace remained weak and below potential,” read a press release from the bank accompanying the announcement.

“Real GDP expanded by one per cent after contracting 0.5 per cent in the third quarter. Consumption was up a modest one per cent, and final domestic demand contracted with a large decline in business investment. A strong increase in exports boosted growth. Employment continues to grow more slowly than the population, and there are now some signs that wage pressures may be easing. Overall, the data point to an economy in modest excess supply.

“CPI inflation eased to 2.9 per cent in January, as goods price inflation moderated further. Shelter price inflation remains elevated and is the biggest contributor to inflation. Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the three to 3.5 per cent range, and the share of CPI components growing above three per cent declined but is still above the historical average.

“The bank continues to expect inflation to remain close to three per cent during the first half of this year before gradually easing.

“Governing council decided to hold the policy rate at five per cent and to continue to normalize the bank’s balance sheet. The council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation.

“Governing council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The bank remains resolute in its commitment to restoring price stability for Canadians.”

Macklem said the bank doesn’t want to “keep monetary policy this restrictive for longer than we have to.”

“But nor do we want to jeopardize the progress that we’ve made in bringing inflation down.”