Bank of Canada holds key interest rate steady at 5.0 per cent

The Bank of Canada held the line on its key interest rate Wednesday.

The bank announced the rate would remain at 5.0 per cent, the same as it was in July. The rate had risen from 4.75 per cent in June.

In a release, the Bank of Canada said recent evidence showed the country’s economy is weakening, which prompted its decision to keep the interest rate at its previous level.

“The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures,” the bank’s release said.

“Economic growth slowed sharply in the second quarter of 2023, with output contracting by 0.2 per cent at an annualized rate. This reflected a marked weakening in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country.”

Forecasters were widely expecting the decision after recent data showed the economy shrank in the second quarter, while the unemployment rate has been on the rise for three consecutive months.

Canada’s inflation rate was 3.3 per cent in July, ticking up from 2.8 per cent in the previous month. That rate is expected to remain around three per cent for the rest of the year, the bank said.

Because of the interest rate, the bank’s release noted it’s ready to raise the policy interest rate if required.

“Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation,” the release said. “In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the two per cent inflation target.

“The Bank remains resolute in its commitment to restoring price stability for Canadians.”

The bank’s next scheduled date for announcing the interest rate is Oct. 25.

— With files from The Canadian Press