Yahoo Finance Bank of Canada holds its benchmark interest rate, says data show economy 'no longer in excess demand'
The Bank of Canada left its benchmark interest rate unchanged at 5 per cent on Wednesday, marking the third consecutive hold as the economy continues to show signs of weakening.
Wednesday's decision is in line with what economists expected.
In its statement-only decision, the central bank highlighted that data indicate the economy "is no longer in excess demand" while reiterating that the central bank is "still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed."
"With further signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5 per cent," the Bank of Canada said in a release.
Still, the bank added that "Governing Council wants to see further and sustained easing in core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour."
The Bank of Canada has left rates on hold since it made a quarter-point hike in July, amid increasing signs that the economy is weakening. The Canadian economy contracted in the third quarter, shrinking 1.1 per cent year-over-year. Canada’s annual inflation rate also slowed to 3.1 per cent in October, more than what economists had expected.
"Higher interest rates are clearly restraining spending," the central bank said in its statement. It also flagged that business investment has been flat in the last year, and that the labour market continues to ease.
Economists had been watching for signs of a shift in the central bank's communications, in the wake of a weakening economy and in anticipation of an end to the bank's tightening campaign.
"It wasn’t yet willing to drop its warning that it could raise rates again if needed, which would definitively mark a turning point. But it deemed that the economy 'is no longer in excess demand', a change from the prior statement which had it 'approaching balance'," CIBC economist Avery Shenfeld wrote in a research note.
Royce Mendes, Desjardins' managing director and head of macro strategy, said the Bank of Canada's statement was "broadly neutral" and that the central bank's communications won't take a more dovish turn until it releases a fresh set of forecasts in the new year.
"Canadian central bankers covered all the bases today," he wrote in a research note on Wednesday.
BMO chief economist Douglas Porter says that "given the Bank's goal of restoring its inflation-fighting credibility among the broader public, the BoC could very well wait as long as possible before shifting to a dovish bias and then to cuts."
"We suspect that while the underlying trend in inflation will improve in 2024, there will be bumps along the way, keeping the Bank on hold a bit longer than the market currently anticipates," Porter wrote in a research note.
"But it is safe to say that the countdown clock to rate cuts has begun, even if the Bank isn't saying so."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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