The Bank of Canada has chosen to keep its main interest rate at five percent. This was expected since the bank has raised the rate 10 times since early 2022 to control inflation, and it has recently hinted that it might be nearing the end of this series of increases.

The bank’s rate affects what Canadians pay on things like variable-rate loans and certain savings accounts. Although the bank raised the rate in July, it has remained unchanged as the Canadian economy is showing signs of slowing down.

The bank explained its decision, stating, “The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices.” Many economists believe the bank is finished with rate hikes and anticipate a rate cut in 2024.

The central bank noted that the economy “stalled” in the middle quarters of the year, with GDP contracting in the third quarter and the jobless rate rising from multi-decade lows. Despite this, the bank emphasized that it is still willing to raise rates further if necessary.

However, some economists, like Royce Mendes from Desjardins, see this as a precautionary measure to prevent market overreactions. Mendes detected a shift in messaging from bank officials, noting that Governor Tiff Macklem mentioned the economy approaching balance and suggested that interest rates seem restrictive enough to bring inflation back to the two percent target. This indicates a likelihood of steady rates.

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