Bank of Canada holds key rate steady at 5 per cent, says economy is weakening

The Bank of Canada held its key interest rate steady at five per cent on Wednesday, deciding against another rate hike as the economy begins to falter.

The Bank of Canada held its key interest rate steady at five per cent on Wednesday, deciding against another rate hike as the economy begins to falter.

"With recent evidence that excess demand in the economy is easing, and given the lagging effects of monetary policy, governing council decided to hold the policy interest rate at five per cent," the central bank said in a news release.

However, the Bank of Canada is keeping the door open to more rate hikes, noting that its governing council is still concerned about inflationary pressures and "is ready to raise interest rates further if needed."

Canada's inflation rate was 3.3 per cent in July, ticking up from 2.8 per cent in the previous month. Inflation is expected to continue oscillating around three per cent for months to come.

The central bank was widely expected to hold its key rate as evidence grows that higher interest rates are weighing on economic activity.

Statistics Canada reported last week real gross domestic product contracted in the second quarter, which convinced forecasters that another rate hike would be unlikely.