The Bank of Canada is keeping its key rate at 4.5% as expected, but it is signaling that the pause in rate hikes could end if necessary.

“The Governing Council continues to assess whether monetary policy is tight enough to ease price pressures and stands ready to raise the policy rate further if necessary to bring inflation back to the 2% target,” said the Board. central bank in its press release.

Monetary authorities note that the Canadian economy is doing better than they had expected at the start of the year and warn that the rest will be difficult. “It may prove more difficult to get inflation back to 2% because expectations are slowly falling, services inflation and wage growth remain high, and corporate pricing practices have not improved.” not yet standardized”.

In its Monetary Policy Report published at the same time as the key rate announcement, the Bank of Canada had to revise its growth forecast for the first quarter of 2023 upwards, which was 0.5%. It now estimates the pace of growth at 2.3% for the first three months of the year.

The Bank of Canada that population growth and government payments to households and tax cuts have stimulated demand for goods and services.

“The $2.5 billion provided through an additional one-time payment of the Goods and Services Tax Credit provides targeted support to low-income households by helping them offset the effects of high inflation on their budget, observes the central bank. In addition, tax cuts in some provinces will increase disposable income over the projection period. In Quebec, for example, reducing the tax rate on the bottom two taxable income brackets will give roughly $1.7 billion a year back to households starting in 2023.”

Excess demand and a still tight labor market are still putting upward pressure on domestic prices, the Bank of Canada said.

Inflation, which was 5.2% in February, is still too high and the economy is still overheating, the central bank notes. Another concern is that the rate of wage growth, which remains between 4% and 5%, is too high. “Unless productivity growth becomes surprisingly strong, it will not be possible to meet the 2% inflation target if wage growth remains within this range of 4-5%,” reiterates the Report. on monetary policy.