The Bank of Canada maintained its policy interest rate -- the target for overnight lending rates -- at 5.0 percent for the sixth straight meeting, as expected, as bank officials need clearer evidence that inflation is on its way down to their 2 percent target amid elevated wage hikes.

The bank said it is also continuing its policy of quantitative tightening to trim the bank's balance sheet to a normal level."While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months," the bank said.

Governing Council"will be looking for evidence that this downward momentum is sustained," the bank said, sounding slightly more bearish than its March statement that the council was"still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation."

"Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour," the bank said. Last month, it said the 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 his opening statement at a news conference, Governor Tiff Macklem said,"We don't want to leave monetary policy this restrictive longer than we need to. But if we lower our policy interest rate too early or cut too fast, we could jeopardize the progress we've made bringing inflation down."

Macklem told reporters that the bank's policy board did discuss when to lower the policy rate but also noted that there is some diversity in views among the six Governing Council members as to how close they are to starting cutting rates. A rate cut at the bank's next meeting in early June would be possible but only on condition that policymakers become more confident about sustained easing in inflation.

Asked if it is possible for the bank to start cutting rates in June, Macklem replied,"Yes, it's within the realm of possibilities. I think we've been clear. We are encouraged by what we've seen since January."

"If things evolve broadly in line with the outlook that we published today, we will be becoming more confident that we clearly are on a path to 2% inflation and it will be appropriate to cut our interest rate," said the governor.

Asked whether more inflation, jobs and GDP data due before the bank's next meeting on June 5 are likely to provide enough evidence that makes policymakers more confident about a rate cut, Macklem said,"What is on our mind is that the decline that we've seen in momentum is very recent."

The Bank of Canada is widely expected to maintain its policy interest rate -- the target for overnight lending rates -- at 5.0 percent for a sixth straight meeting. In the coming months, the bank's policymakers will have to make a tough decision as to when they should start lowering the rate from the restrictive level amid mixed economic indicators. The jobless rate jumped to 6.1 percent in March from 5.8 percent in February but growth in average hourly wages edged up to 5.1 percent on year after easing to 5.0 percent. Consumer inflation eased gradually to 2.8 percent in February while GDP showed the economy started the year with a robust 0.6 percent gain on the month in January and a further 0.4 percent rise is expected.

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.