Bank of Canada stands pat on interest rates, citing economy that has yet to fully dig out from the pandemic | CBC News

The bank slashed its rate to a record low of 0.25 per cent at the start of the pandemic.

Under normal circumstances, a central bank would raise its rate to cool down a red hot economy and control inflation. It would cut its rate in order to stimulate a cold economy by encouraging people and businesses to borrow and invest.

Ordinarily, high inflation such as what’s happening in Canada and around the world right now might compel a central bank to turn off the stimulus taps. But in announcing its decision on Wednesday, the bank said it decided to keep its rate right where it is for a little while longer yet.

“The Bank’s extraordinary forward guidance on the path for the overnight rate is being maintained,” the bank said. “The economy continues to require considerable monetary policy support.”

While Statistics Canada data shows that Canada’s economy grew by a robust 5.5 per cent in the third quarter, the country’s GDP is still 1.5 per cent below where it was before the pandemic, the bank noted.

Inflation, too, has skyrocketed, but there’s evidence that supply chain problems fueling the surge in prices are starting to ease. Gas prices, which have been a major factor in pushing up the inflation rate, are also starting to ease. “Core measures of inflation are little changed since September,” the bank noted.

The bank says it is not ready to start hiking interest rates until the “economic slack” in the economy gets absorbed.

“In the Bank’s October projection, this happens sometime in the middle quarters of 2022,” the bank said. “We will provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation target.”