Bank of Canada (BoC) Keeps The Interest Rate Steady At 5%
On Wednesday, the Central Bank of Canada (BoC) decided to keep the interest rate unchanged near 5%. They added the Canadian economy is growing through weak growth, which makes it harder to introduce rate hikes.
At the same time, the BoC made it clear that inflationary pressure is still present and is higher than the range set by the central bank. As a result of this, more rate hikes will happen in 2023 and 2024 to curb inflation despite the economic weakness.
According to an economist, the Bank of Canada is closely following the economic indicators to gauge the effects of the interest rate. Especially the effect of the interest rate on the consumer appears to be a keen indicator for the BoC.
Interest Rate Peak Not Achieved
That's why the BoC decided to give hints on why they are still far from the peak of the interest rate. At the same time, they also hinted that the risk is geared towards the upside in an attempt to ensure that the markets are not surprised.
Another thing that is clear from the BoC messaging is that inflation will likely turn higher in the near term. In addition, the BoC also showed its dissatisfaction with the inflationary pressure.
Looking ahead, the BoC will want to avoid consumption and real estate to go into contraction. Especially what we saw during the Q1, that's the last thing the BoC would want to happen again.
That's why one expert believes that the BoC tried to sound hawkish, but when it comes to executing the policy of more rate hikes, the chances are very slim.
After all, the risks of high-interest rates are very real, and we already see its aftershocks in the Canadian economy. So unless the BoC wants to risk recession, we will likely not see further rate hikes any time soon.