Rate hikes have been paused for now.
The Bank of Canada has opted to maintain the benchmark interest rate at 4.5%.
It’s the first time in nine interest rate decisions that the BoC has kept rates steady rather than raising them.
The move comes as recent data shows an economic slowdown, and as highly-indebted Canadians struggle amid higher interest costs.
However, with other central banks – including the U.S. Federal Reserve – indicating they will continue to hike rates, Canadians could face a decline in our purchasing power, which will itself fuel inflation.
As noted by BNN Bloomberg, economists say there is a limit to how far Canada can diverge from the U.S. on interest rates:
“On Tuesday, Fed Chair Jerome Powell told lawmakers rates will likely have to go higher than previously anticipated. Bets on the U.S. central bank’s next move then tilted toward a half-percentage-point hike, instead of a quarter-point, with investors seeing Powell continuing to hike the Fed funds rate to 5.5 per cent or higher.
Economists say the Bank of Canada can only comfortably lag the policy rate of its powerful neighbour by about 100 basis points. Wednesday’s statement removed reference to a stable Canadian currency, replaced with an acknowledgment of recent U.S. dollar strength.”
Spencer Fernando
