Bank Of Canada Announces A Steady Interest Rate At 4.5% Amid Cooling Inflation

To give the economy time to adjust to its prior rate hikes, the Bank of Canada opted to maintain its interest rate at 4.5 per cent on Wednesday, April 12.

Canadian Economic Scenario 

As per The Globe And Mail, in anticipation of a sharp decline in inflation over the next several months, the Bank of Canada maintained its key interest rate at 4.5 per cent.

The widely anticipated action supports the bank’s decision to halt its rate-hike campaign last month after eight straight rises.

Early in 2023, economic growth was faster than anticipated, which made it difficult for the central bank to restrict consumer spending and restrain price inflation. Still, bank officials expect a real slowdown in the Canadian economy in the upcoming quarters. This situation might be accentuated by a reduction in commercial bank lending in the wake of the recent upheaval in the U.S. and European banking sectors.

Little has changed since January, according to the bank’s latest inflation outlook. It anticipates that from 5.2% in February, the annual inflation rate will fall to about 3% by the middle of the year. After that, inflation is anticipated to decrease steadily to 2% by the end of 2024.

Rate-Hike Campaign

The bank started an aggressive campaign of rate rises in early 2022 once inflation surged to its highest level in decades after cutting its benchmark lending rate during the early stages of the pandemic to keep the economy functioning.

Inflation in Canada reached a high of over 8% in June 2022 and then declined to just over 5% by February 2023. The data for March will be made public the following week, and the rate is anticipated to decrease to around 4%.

The cooling made the Bank of Canada opt to remain on the sidelines for the time being. 

While it appears like inflation is heading in the downward direction, the bank warned that risks are still present.

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