By Paul Vieira

OTTAWA--The Bank of Canada kept its main interest rate unchanged at 5% on Wednesday, and said senior officials are focused on how long the rate needs to stay at its current level to wrestle down stubbornly-high inflation.

Bank of Canada Gov. Tiff Macklem said the central bank has not ruled out further policy rate increases should new developments, such as a widening conflict in the Middle East, push prices higher. However, he said based on ample evidence of weakness among consumers and businesses, deliberations among senior officials ahead of Wednesday's rate decision shifted "from whether monetary policy is restrictive enough to how long to maintain the current restrictive stance."

In a statement outlining its rationale, the Bank of Canada said it expects inflation to remain close to 3% over the first half of 2024, before slowing gradually and reaching 2% in 2025. The central bank sets rate policy to achieve and maintain 2% inflation. The central bank said measures of core inflation, which strip out volatile items like food and energy, "are not showing sustained declines."

Macklem, in prepared remarks he was set to deliver at a press conference later Wednesday morning, said senior officials are "concerned about the persistence in underlying inflation. We want to see inflationary pressures continue to ease and clear downward momentum in underlying inflation."

Inflation in Canada picked up steam in December, climbing 3.4% from 3.1% in the previous month. More important for the central bank, Canadian core inflation also accelerated in December, up 3.65%, based on an average of the Bank of Canada's preferred gauges, from 3.55% in the prior month.

The policy decision, the first in 2024, marks the fourth consecutive fixed-date rate announcement in which the Bank of Canada kept its target for the overnight rate steady at 5%. All 14 economists surveyed last week by The Wall Street Journal predicted no change in the policy rate, with inflation and wage growth at elevated levels. Ten of the 14 economists polled indicated rate cuts are expected before the end of June.


Write to Paul Vieira at paul.vieira@wsj.com


(END) Dow Jones Newswires

01-24-24 1000ET