The Bank of Canada has raised the key interest rate by 25 basis points to a 15-year high of 4.5%.
Wednesday’s decision marks the eighth consecutive time the Bank of Canada has raised the cost of borrowing, hiking the benchmark rate a total of 4.25 per cent in the past year in an effort to tamp down inflation.
Bank of Canada Governor Tiff Macklem said: “I can tell you that the Minister of Finance has recently communicated to me that the government intends to introduce legislative amendments that will allow the bank to retain earnings to offset losses.”
“So what this means is it will allow on a temporary basis the Bank of Canada to retain earnings rather than remitting them to the government, for the purpose of recovering losses. Once positive equity is restored we would resume our normal remittances to the Government of Canada.”
The Bank added that the hold is dependent on whether the economy continues to develop according to its forecast, and said additional hikes are in the cards to get inflation back down to the two per cent target.
“If economic developments and in particular if inflation comes down in line with our forecast that will confirm that we have likely done enough. If on the other hand we start to see an accumulation of evidence that inflation is not coming down in line with our forecasts we are prepared to raise interest rates further,” Macklem added.
“This isn’t going to key off one piece of data or one release, we are looking for an accumulation of evidence.”
Headline inflation has cooled from a high of 8.1 per cent in mid-2022, most recently clocking in at 6.3 per cent in December.
However, pressure remains on food prices and some other inflationary inputs. The Canadian job market also remains tight, with unemployment sitting just above a record low last month.
“It is really far too early to be talking about cuts. The pause really is designed to give us time to assess if we have raised interest rates enough to get inflation all the way back to target,” Macklem added on the possibility of cuts.