Governor Tiff McClam said the Bank of Canada is now focusing on when it can start cutting interest rates. At the same time, he announced to keep the policy interest rate unchanged at 5 percent.
McClam said overall demand in the economy is no longer outstripping supply. In this context, the Governing Council’s monetary policy discussion has now shifted from policy interest rates to price stabilization. Also, how long the interest rate can be kept at this level.
The Bank of Canada kept its policy interest rate unchanged, not surprising. Declining inflation coupled with weak economic growth is allowing the Bank of Canada to keep interest rates unchanged. They are also looking at how the economy reacts to higher interest rates. Economists, however, are eagerly awaiting any indication of interest rate cuts from the Bank of Canada.
Royce Mendes, managing director and head of corporate strategy at Desjardins, said the central bank’s interest is as expected. The central bank will not go from raising interest rates to cutting interest rates in a single meeting. So, it is the phase of transformation.
McClame commented that the central bank has left the path open to further increase the interest rate if inflation does not come down as expected despite the change in the message. This does not mean, however, that we are ruling out the possibility of further hikes in policy interest rates, he said. We may still need to raise interest rates.
Note that Canada’s annual inflation rate was 3.4 percent in December.