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Bank Of Canada Keeps Interest Rate Unchanged At 5%

This marks the third consecutive instance where the Bank of Canada has chosen to keep its key rate steady.

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The Bank of Canada maintained its key interest rate at five percent on Wednesday, citing indications that the implementation of higher rates has contributed to a reduction in inflation.

In a press release disclosing its final decision for the year, the central bank noted, “Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year.”

The central bank added that the combination of a slowdown in growth and a cooling job market implies that demand is no longer surpassing supply in the economy. According to the Bank of Canada, this deceleration is crucial to restoring price stability.

This decision on Wednesday marks the third consecutive instance where the Bank of Canada has chosen to keep its key rate steady, aligning with widespread expectations that the next move by the Bank of Canada would likely be a rate cut. However, the possibility of future rate hikes has not been ruled out.

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The central bank stated, “Governing council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed.”

Facing the challenge of increased borrowing costs, the Canadian economy has grappled with consistent growth throughout the year. The latest GDP report revealed a 1.1 percent contraction on an annualized basis in the third quarter.

Simultaneously, inflation has significantly eased over the past year, reaching 3.1 percent in October. In October, the Bank of Canada predicted that inflation would revert to the two percent target by 2025.

The next rate decision, accompanied by updated economic forecasts, is scheduled for January 2024.

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