Bank of Canada holds policy rate at 5% in first decision of 2024
In a scheduled announcement on January 24, 2024, the Bank of Canada decided to maintain its target for the overnight lending rate at 5%. This was its fourth consecutive hold after two interest rate hikes last summer.
The Bank noted that Canada’s economy had performed sluggishly over the second half of 2023 and anticipated no growth over the first quarter of 2024 before picking up in the second half of this year. The Bank also stated that “spending by governments contributes materially to growth through the year,” suggesting they will be waiting until the federal government tables the next budget before revising their projections.
The Bank once again cited shelter costs as the largest contributing factor to above-target inflation due to rising mortgage interest and rents, which it does not expect to return to its 2% target until next year. Although many components of the CPI are showing signs of normalizing, with the Bank noting in its Monetary Policy Report that monetary policy is working as intended to slow growth, core measures are still running higher than the Bank’s preferred range.
The Bank is still concerned about risks to the outlook for inflation, particularly underlying core inflation, and would like to see “further and sustained easing” in this regard while it focuses on economic and other inflationary factors.
The Bank of Canada’s next scheduled interest rate announcement will be on March 6, 2024, and will publish its full outlook for the economy and inflation in its next Monetary Policy Report on April 10, 2024.