Bank of Canada Retains Key Interest Rate at 5%, Foresees Slow Growth, Persistent Inflation

Bank officials cite potential government overspending and housing supply issues as key concerns, while higher bond yields indicate longer-term market adjustment to persistent inflation.

The Bank of Canada maintained its key interest rate at 5%, citing worries over government overspending, which is adding to demand more than supply is growing, and housing supply issues that persistently complicate affordability.
The bank projects growth to remain below 1% for the next several quarters, with potential negative outcomes and maintains that a steep economic contraction and major rise in unemployment are not forecasted.
Officials cited rising bond yields, propelled partly by the market's adjustment to stubborn inflation, structural elements like the US deficit leading to an increased supply of bonds, and higher rates for longer-term assets.
Governor Tiff Macklem expressed concerns about potential escalated tensions in the Middle East impacting energy prices and its overall effect on inflation; their focus is on the impacts on core inflation.
BoC has to rely more on interest rates to tackle inflation because an appreciation of the Canadian dollar is not reducing inflation on imported goods, despite the US also raising rates, which is restraining demand for Canadian exports.