The Bank of Canada has decided to hold its key interest rate at 4.50%, becoming the first major central bank in the world to suspend rate increases.
The bank has raised the interest rate eight times over the past year, for a total increase of 425 basis points. However, in a statement released on Wednesday, the bank cited weaker economic growth and slowed inflation as the reason for their decision to pause.
The bank is expecting near-zero growth for the first three quarters of 2023 and inflation in Canada slowed to 5.9% in January, which was above expectations. The weaker Canadian dollar, which was at a four-month low of 72.50 US cents on Wednesday, may increase inflation by driving up the cost of imported goods.
In its statement, the Bank of Canada noted that “restrictive monetary policy continues to weigh on household spending,” and that “pressures in product and labor markets are expected to ease” with weak economic growth expected in the next few quarters.
This decision by the Bank of Canada marks a departure from the trend of other major central banks around the world, which have been increasing interest rates in response to rising inflation. However, the bank’s decision to suspend rate increases is seen as a prudent move to support economic growth and to prevent further inflationary pressures in the Canadian economy.