BoC holds key interest rate steady as speculation shifts to timing of rate cuts

The Bank of Canada chose to keep its key interest rate unchanged at five per cent as the economy slows and experts speculate about potential rate cuts in 2024. The central bank’s decision came after evidence showed that higher rates were helping to bring down inflation.

In a statement detailing its final decision of the year, the bank noted that higher interest rates were restraining spending, with consumption growth close to zero and business investment flat over the past year. The combination of weaker growth and a cooling job market indicates that demand is no longer outpacing supply in the economy, according to the central bank.

The Bank of Canada has argued that this slowdown is necessary to restore price stability. However, while the bank is still keeping the door open to more rate hikes, economists and market watchers believe that rate cuts are inevitable.

The central bank’s next rate decision, along with its updated economic forecasts, is scheduled for January 24. The timing of rate cuts will depend on how the economy performs in the coming months. The Canadian economy has struggled to consistently grow and the labor market has lost steam as the unemployment rate rises.

Economist Douglas Porter predicts a sluggish year ahead due to the Canadian economy not yet fully absorbing the Bank of Canada’s hefty rate hikes. The economy is expected to rise by only 0.5 per cent next year, indicating a slow year ahead.

Overall, the Bank of Canada’s decision to hold its key interest rate steady reflects the ongoing challenges in the Canadian economy and the uncertainty surrounding future monetary policy.

This report by The Canadian Press was first published on December 6, 2023.