OTTAWA—The Bank of Canada held its policy rate at 5 percent on March 6, and said it remains concerned about the outlook for inflation.
The BoC statement’s final paragraph about its Governing Council is essentially identical to that of its prior interest rate decision of Jan. 24.
With the underlying trend still growing faster than 3 percent annually, the BoC said it needs to give higher interest rates more time to do their work and it does not want to squander the progress made in the fight against high inflation.
“Governing Council wants to see further and sustained easing in core inflation,” according to the Bank of Canada’s press release.
In January, annual inflation came in at 2.9 percent—within the BoC’s target range—after a 3.4 percent increase in December.
The central bank was widely expected to leave interest rates unchanged. Many economists expect the first rate cut to come in June.
Bank of Canada governor Tiff Macklem said in remarks provided before the BoC press conference that “There have been no big surprises.”
The Canadian economy is showing signs of weakness, as the BoC projected in January.
While the economy expanded by 1 percent in the fourth quarter after contracting by 0.5 percent in the third quarter, the BoC said, “the pace remained weak and below potential … final domestic demand contracted with a large decline in business investment.”
Growth was helped by a strong rise in exports.
The Bank of Canada said the labour market “has come into better balance” and that “there are now some signs that wage pressures may be easing.”
Wage growth has been in the 4 percent to 5 percent range for a while. The concern is that higher prices can fuel higher wages and vice versa—a wage-price spiral.
“We are looking for further evidence that wage growth is moderating,” said Mr. Macklem’s statement.
The BoC said employment is growing more slowly than the population and job vacancies have come down to more typical levels while the pace of hiring has been modest.
The unemployment rate fell to 5.7 percent from 5.8 percent in January, marking the first decline since December 2022. It had risen through most of 2023—from 5.1 percent in April to 5.8 percent in December.
But the January jobs report highlighted a trend of more public-sector and part-time positions being created while businesses slowed their hiring.
The BoC also provided an update on the global economy. It said U.S. growth slowed but remained “surprisingly robust and broad-based,” which is in stark contrast to the Canadian circumstances.
