The Bank of Canada held its key interest rate steady at five per cent, arguing it is still too soon to start lowering rates.
The central bank announced its interest rate decision Wednesday as economists widely expected no change in the policy rate.
Inflation has continued to ease and the economy is weakening, but underlying price pressures are still persistently high, it said.
“With inflation still close to three per cent and underlying inflationary pressures persisting, the assessment of governing council is that we need to give higher rates more time to do their work,” said Governor Tiff Macklem, according to his prepared remarks.
“We’ve come a long way in our fight against high inflation. But it’s still too early to loosen the restrictive policy that has gotten us this far.”
Canada’s inflation rate dropped to 2.9 per cent in January, falling back within the Bank of Canada’s one-to-three per cent target range.
But the central bank notes its preferred core measures of inflation, which strip out volatility in prices, are still running between three and 3.5 per cent.
Higher interest rates have helped slow down the pace of price growth by causing a pullback in spending in the economy.
The Bank of Canada has been clear it doesn’t want to move too soon, only to have to reverse course later.
“We don’t want to keep monetary policy this restrictive for longer than we have to,” Macklem said. “But nor do we want to jeopardize the progress we’ve made in bringing inflation down.”
Forecasters widely expect the central bank to begin lowering interest rates around the middle of the year.
