Bank of Canada holds key interest rate at 5%, says things moving in right direction

The Bank of Canada has held its key interest rate at five per cent for the sixth consecutive time since July, saying it will look for signs of sustained slowing infla‐ tion before moving on rate cuts.

The central bank said that inflation is still too high, but noted that core inflation measures - which strip out volatile sectors like food and energy - have trended down‐ ward in recent months.

"I realize that what most Canadians want to know is when we will lower our policy interest rate. What do we need to see to be convinced it's time to cut?" Bank of Canada governor Tiff Mack‐ lem said during a press con‐ ference following the an‐ nouncement.

"The short answer is we are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stabil‐ ity will be sustained. The fur‐ ther decline we've seen in core inflation is very recent. We need to be assured this is not just a temporary dip."

Macklem said that a rate cut in June is "within the re‐ alm of possibilities."

While inflation cooled to 2.8 per cent in February, with price growth slowing across goods, food, clothing and services, high rent and mort‐ gage interest costs continue to drive up the overall infla‐ tion rate.

The bank expects inflation will move closer to its two per cent target this year, and that it will reach it in 2025. The bank also expects solid GDP growth this year and in 2025, due to population growth and increased house‐ hold spending.

"As we consider how much longer to hold the policy rate at the current lev‐ el, we're looking for evidence that the recent further easing in underlying inflation will be sustained," Macklem said.

The bank first raised in‐ terest rates in March 2022, the beginning of an aggres‐ sive campaign to cool infla‐ tion that resulted in 10 rate hikes in less than two years.