Bank Of Canada Holds Rates, Sees Few Signs Energy Prices Broadly Fueling Inflation

• The ​Bank of Canada (BoC) on left its key interest rate unchanged as expected and said it was ‌seeing limited evidence that higher energy prices were fueling broad-based inflation. But Governor Tiff Macklem reiterated that the bank would not hesitate to raise rates if need be to keep inflation in check.
• This decision marks the fifth consecutive meeting at which the BoC has left its key policy rate at the 2.25% ​level, as an array of factors have complicated the economic outlook. The Iran war, which has sent gasoline prices soaring, ​is squeezing household budgets, though Canada, as a net exporter of crude oil, is taking in more ⁠
• Data last month showed Canada's economy posted a surprise contraction in the first quarter versus the year before, making it two straight quarters of annualised decline, which some economists call a technical recession. Macklem, though, said that the economy had basically been flat over the ​last year.
• Canada's overall inflation rate in April ​rose to 2.8%, and Macklem said ​the bank expected it ⁠to hover around 3% before gradually easing toward the 2% target.
• Macklem noted that the Middle East war posed a dilemma for monetary policy makers. Raising rates to dampen inflation could further slow the economy, while ​easing rates to support growth increases the risk of persistently higher inflation.
• Economists see the upcoming review of the North American free trade deal - the ⁠United States-Mexico-Canada ​Agreement - as the biggest uncertainty hanging over the economy. Macklem reiterated that if the U.S. ​imposed significant new trade restrictions, the bank might have to cut rates. If, on the other hand, higher energy prices started leading to generalised inflation, "there may ​be a need for consecutive rises in the policy rate."

(Source: Reuters)