The Bank of Canada maintained as expected its policy interest rate at 5.0 percent for the fifth straight meeting. Officials continue to look for clearer signs that inflation is headed down toward the bank's 2 percent target before considering a rate cut. The bank is also continuing its policy of quantitative tightening to trim the bank's balance sheet to a normal level.

Governing Council is"still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation," the bank said, repeating its previous policy statement issued in January."Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour."

In an encouraging sign for its inflation fight, the bank noted that Canadian employment continues to grow more slowly than the population, and that"there are now some signs that wage pressures may be easing" as the pace of economic growth in the fourth quarter"remained weak and below potential."

"Overall, the data point to an economy in modest excess supply," the bank said.

The bank's concern is that underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3 percent to 3.5 percent range, and the share of CPI components growing above 3 percent declined but is still above the historical average."The Bank continues to expect inflation to remain close to 3 percent during the first half of this year before gradually easing."

In his opening remarks at a news conference, Governor Tiff Macklem repeated his warning that the bank's job is not done yet."Monetary policy is working -- inflation is coming down." he said."But it's too early to loosen the restrictive policy that has gotten us this far. Low, stable inflation is a cornerstone of shared prosperity, and we remain resolute in our commitment to restore price stability."

Economists expect the bank will wait until mid-2024 before considering lowering interest rates. The BoC's next policy announcement is on April 10 when it will also provide medium-term economic forecasts and risk analysis in its quarterly Monetary Policy Report. In its January report, the bank projected that inflation would remain close to 3 percent during the first half of this year before gradually easing, returning to the 2 percent target in 2025.

Macklem told reporters that the bank does not provide forward guidance and thus that it would not put a rate cut schedule on the calendar. He called for patience: Monetary policy takes time to have a full impact on economic activity as it works through an indirect channel."We are taking one meeting at a time," he said, repeating his earlier remarks."There is clear consensus at Governing Council that the time (for a rate cut) is not now … and hold the policy rate at 5 percent."

The Bank of Canada is expected to maintain its policy interest rate -- the target for overnight lending rates -- at 5.0 percent for a fifth straight meeting as it continues to monitor price pressures and economic growth to avoid over-tightening and lowering interest rates too early. Canada's consumer inflation eased to 2.9 percent in January after ticking up to 3.4 percent in December but it is still above the bank's 2 percent target. Fourth quarter GDP data showed the economy grew at a 1.0 percent annual rate after a 0.5 percent drop in the previous quarter, averting a technical recession.

Canada's central bank, the Bank of Canada (BoC), announces its monetary policy with regard to interest rates eight times a year. The announcement conveys to the financial markets and investors what, if any, changes in policy might be. The main focus is the target set for the overnight rate. Policy is framed around keeping the annual rate of inflation as measured by the consumer price index (CPI) within a 1 percent to 3 percent range and close to the 2 percent midpoint over the longer-run. To this end, the BoC also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.

Bank of Canada determines interest rate policy at eight meetings during the year and they are an influential event for the markets. Prior to each meeting, market participants speculate about the possibility of an interest rate change. A post-meeting statement is issued after each meeting. Unlike the Federal Reserve, there are no post-meeting minutes. The Bank has an inflation target range of 1 percent to 3 percent with specific focus on the 2 percent midpoint.

Although the Bank monitors many economic indicators, as indeed all central banks do, the Bank converted its inflation barometer for operational purposes to a consumer price index measure that subtracts eight volatile components to better reflect core inflation. It also takes the foreign exchange rate for the Canadian dollar into its monetary policy decisions.

Monetary policy goals are to aid and abet solid economic growth along with rising living standards. To achieve these goals, inflation is kept low, stable, and predictable. The inflation control target is at the heart of Canadian monetary policy that the Bank and the Government have established. The level of interest rates and the exchange rate determine the monetary environment in which the Canadian economy operates.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.