Bank of Canada Keeps Rates Steady at 5%

By Paul Vieira

OTTAWA–The Bank of Canada left its main interest rate unchanged Wednesday at 5%, saying steeper borrowing costs are dampening consumption, and bringing supply and demand closer to balance.

It warned progress toward reaching its 2% inflation target remains slow, with little downward momentum to date on core prices, which strips out volatile items like food and energy. The central bank — which sets rates to achieve and maintain 2% inflation — reiterated its pledge to lift rates again if required.

All 14 economists surveyed last week by The Wall Street Journal predicted no change in the Bank of Canada’s target for the overnight rate, with some analysts arguing Canada was flirting with a recession.

In a statement explaining its decision, the Bank of Canada said there is “growing evidence that past rate increases are dampening economic activity and relieving price pressures.” The central bank downgraded its growth outlook, and now expects 1.2% expansion this year versus its prior 1.8% prediction. Output in Canada is forecast to decelerate further in 2024, with growth of 0.9%.

“A range of indicators suggest that supply and demand in the economy are now approaching balance,” the central bank’s statement said.

Write to Paul Vieira at paul.vieira@wsj.com