Bank of Canada holds key interest rate steady at five per cent

Canada’s central bank is holding its key interest rate steady, but lower rates could be on the horizon.

The Bank of Canada maintained its rate at five per cent on Wednesday, but governor Tiff Macklem said economic conditions have been improving since January, meaning rates could be lowered soon.

The decision wasn’t a surprise to economists, who expected the bank to hold the rate steady before announcing a rate cut in June.

The Bank of Canada expects to return to its two per cent target by the end of next year.

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Economic growth is expected to pick up this year with estimated GDP growth of 1.5 per cent, largely due to strong population growth and what the bank called “a recovery in spending by households.” Government and business investment is also projected to increase this year.

“Inflation continues to slow across most advanced economies, although progress will likely be bumpy,” the bank said in a statement. “Inflation rates are projected to reach central bank targets in 2025.”

In February, Canada’s inflation rate dropped to 2.8 per cent, but the bank noted that inflation on homes remains “very elevated,” due to hikes in rent and mortgage interest costs.

The bank’s next scheduled overnight rate update is expected on June 5. The central bank’s full outlook on the economy and inflation is expected on July 24.

– With files from The Canadian Press