Bank of Canada Governor Stephen Poloz cited inflation concerns when announcing his decision Wednesday to hold the central bank’s benchmark interest rates steady at 1.25%.
Speaking to reporters, Governor Poloz said that he was “surprised” at how much the Canadian economy cooled off in the first quarter of 2018 after posting stronger than expected growth for much of 2017, and stressed that inflation is becoming an issue of concern for the central bank. Statistics Canada said that the annual inflation rate rose to 2.2% in February, up from 1.7% in January.
“Inflation's at two per cent,” Governor Stephen Poloz said. “That's a good starting point because that's the destination. But we want to be cautious in our approach.”
Governor Poloz went on to explain that higher gas prices coupled with minimum wage hikes in much of Canada are expected to have a “transitory impact” on inflation in the short term.
"The economy is projected to operate slightly above its potential over the next three years, with real GDP growth of about 2% in both 2018 and 2019, and 1.8% in 2020," the Bank of Canada said in a written news release announcing its decision to hold interest rates at current levels.
The central bank added that weakness in the housing market plus trade uncertainties are weighing on the Canadian economy's prospects, but it expects a boost from increased foreign trade, plus higher wages for Canadians. The bank concluded by stressing its intention to hike rates in the near future.
"Higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target," wrote the Bank of Canada.
Canada’s central bank's next scheduled interest rate announcement is May 30.
