The Bank of Canada acknowledged that the economy is slowing as it announced a widely expected decision to hold its benchmark interest rate at its current level of 5%.
Bank of Canada Governor Tiff Macklem said the latest data shows the economy is cooling rapidly, which is why the central bank decided to hold interest rates steady.
Gross domestic product (GDP) in Canada contracted by 0.2% year-over-year in the second quarter, far below the central bank’s estimate for a 1.5% expansion.
However, Macklem warned that inflation is proving difficult to lower to the Bank of Canada’s 2% annualized target and said more interest rate hikes could be coming, if needed.
Officials remain “concerned about the persistence” of underlying inflation and are “prepared to increase the policy rate further if needed” read the Bank of Canada’s statement accompanying the latest decision on interest rates.
Most economists forecast that the Bank of Canada is now finished raising interest rates. A survey by Bloomberg News sees the central bank’s next move as an interest rate cut in April 2024.
The Bank of Canada’s next interest rate decision is scheduled for October 25 of this year.