The Bank of Canada announced it will retain its target of a 5% overnight rate on Wednesday. According to the Bank of Canada website, it will continue its policy of quantitative tightening, a practice of reducing the amount of money circulating in the economy. 

The bank rate will remain at 5.25% and the deposit rate at 5% as a result of the global economy slowing, but the threat of inflation remains ongoing.

“The Bank projects global GDP growth of 2.9% this year, 2.3% in 2024 and 2.6% in 2025. While this global growth outlook is little changed from the July Monetary Policy Report (MPR), the composition has shifted, with the US economy proving stronger and economic activity in China weaker than expected,” reads a Bank of Canada press release.

The central bank stated that while inflation is easing in most economies, which is relieving pressure on the cost of goods, underlying inflation is still persisting. 

Oil prices, for example, are higher now than they were expected to be in July and the Israel-Hamas war is a “new source of geopolitical uncertainty.”

“In Canada, there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures. Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment,” reads the release.

Rates could be maintained in part due to certain sectors of the labour market feeling less strained as the population grows. However, that growth has added pressure on housing, consumption and the demand for higher wages.

Despite the complex factors in the labour market, “a range of indicators suggest that supply and demand in the economy are now approaching balance.”

Economic growth is expected to grow by late 2024 and through 2025 but will remain weak for the time being as a result of past interest rates and slower international demand. 

“Overall, the Bank expects the Canadian economy to grow by 1.2% this year, 0.9% in 2024 and 2.5% in 2025,” states the release.

Inflation in the Consumer Price Index (CPI) has been “volatile” over the past several months with 2.8% in June, 4% in August and 3.8% in September. 

The higher interest rates help to moderate the inflation on an assortment of goods that people buy on credit, which later spreads to services. 

Food inflation is beginning to come back down slightly from the very high rates over the past year but inflation on rent, housing and mortgage rates remain high. 

CPI inflation is expected to average around 3.5% though the middle of 2024 before slowly coming back down to 2% in 2025, according to the bank’s October projection. 

The near-term path will stay high as a result of “energy prices and ongoing persistence in core inflation.”

While the Bank of Canada has decided to hold the monetary policy rate of 5%, it is “concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed.”

The Bank of Canada will give its next rate target update Dec. 6, with a monetary policy report to be published in January.