In this morning’s announcement, the Bank of Canada decided to hold the policy interest rate at 5 per cent and will also continue its policy of quantitative tightening. With concerns over inflationary pressures becoming entrenched in the system, the Bank is not yet prepared to take further rate hikes off the table. The hold today was widely anticipated and expected by economists, marking the third one by council since this tightening cycle started last year. There is evidence that excess demand in our economy is drying up however we are still drifting slightly higher above target range. Recent year over year Consumer Price Index (CPI) data reflected a pickup in July of 3.3 per cent following a 2.8 per cent increase in June (Stats Canada) and the bank cited elevated gasoline prices as indication that CPI inflation will most likely remain higher in the coming months before easing again. There is no doubt we have seen downward momentum slow in core inflation metrics which gives rise to worries surrounding just how smooth the path to restoring price stability will be. Canada has entered a period of deteriorating growth amidst high borrowing costs and non-discretionary consumption is fading, we still have wage inflation sitting in the 4 to 5 per cent range. Although central bankers are content to sit tight for now and assess whether a weakening economy will lend itself to their mandate of maintaining price stability, they have been wise to avoid specific rhetoric surrounding a firm pause – let’s not forget what happened at the start of 2023 where a pause signal sparked a pricing in of future rate cuts adding fuel to the housing market fire. Tiff Macklem will shed more light on today’s decision and the Bank’s outlook for the Canadian economy in an address to the Calgary Chamber of Commerce on Thursday and the next central bank decision is due on October 25^th.

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Ally Pyle is an Investment Advisor with CIBC Wood Gundy in Peterborough. She and her clients may own securities mentioned in this column. The views of Ally Pyle do not necessarily reflect those of CIBC World Markets Inc.