Bank of Canada Holds key Interest Rate, Cuts Growth Forecast

The Bank of Canada kept its benchmark interest rate steady at 0.25% on Wednesday, noting that while the economy is improving in line with vaccinations, the spectre of coronavirus variants makes the recovery uncertain.

Canada's central bank said Wednesday that it has no plans to raise its benchmark interest rate, known as the target for the overnight rate, until Canada's inflation rate shows signs of settling in at around 2%.

Official data shows the inflation rate is currently at its highest level in a decade at 3.4%, but the bank thinks that spike is only temporary and will come back into a more normal range once "transitory" imbalances in things like supply and demand for consumer goods, shipping bottlenecks and a global shortage of semiconductors level off.

"In the Bank's July projection, this happens sometime in the second half of 2022," the bank said, which means it expects to keep its rate right where it is for about another year at least.

"The global economy is recovering strongly from the COVID-19 pandemic, with continued progress on vaccinations, particularly in advanced economies. However, the recovery is still highly uneven and remains dependent on the course of the virus."

The bank's benchmark rate impacts the rates that borrowers and savers get from retail banks on things like variable rate mortgages, lines of credit and savings accounts. All things being equal, the central bank cuts its rate when it wants to encourage spending and investment to stimulate the economy. It raises it when it wants to cool down inflation.

The bank's benchmark rate impacts the rates that borrowers and savers get from retail banks on things like variable rate mortgages, lines of credit and savings accounts. All things being equal, the central bank cuts its rate when it wants to encourage spending and investment to stimulate the economy. It raises it when it wants to cool down inflation.

While the bank's decision Wednesday makes it clear it's comfortable keeping its rate steady, it is still taking its foot off the stimulus gas pedal in other ways.