The Strategist

Bank of Canada expectedly kept the prime rate at the maximum level in 22 years

01/25/2024 - 10:04

The Bank of Canada maintained its benchmark interest rate on Wednesday, marking the highest level since 2001, at 5% annually.

Bank of Canada - Banque du Canada
Bank of Canada - Banque du Canada
Trading Economics notes that the regulator's decision was in line with analysts' forecasts.

The central bank decided not to alter the rate for the fourth meeting in a row.

The Governing Council expressed its continued concern for inflationary concerns, particularly the potential for core inflation to increase after the surprise price increase in December. This means that a tight monetary policy must be maintained.

The central bank projects that overall inflation would stay stable in the first half of 2024, hovering around the 3% mark, before reverting to the 2% objective in 2025.

Governor of the Bank of Canada Tiff Macklem stated that he did not completely rule out the prospect of additional rate increases in the event that new factors—like the escalating crisis in the Middle East—contribute to increased prices.

At that, he noted that plenty of evidence of declining consumer spending, business investment, and economic activity has refocused the debate "from whether the monetary policy is sufficiently restrictive to how long to maintain the current restrictive stance."