The Bank of Canada held its key interest rate steady and telegraphed that it may need to keep rates higher for longer as the effects of tighter borrowing conditions continue to ripple through the economy.

Bank of Canada governor Tiff Macklem said price growth is easing quickly and will slow to about three per cent this summer, while the economy is expected to grow modestly even as inflation comes down.

“This is good news, but it is not job done,” Macklem said at a news conference in Ottawa.

“Our destination is the two per cent inflation target, and several things have to happen to get inflation all the way back to the two per cent target. Inflation expectations have to come down further, services price inflation and wage growth need to moderate, and corporate pricing behaviour has to normalize.”

Economists were widely anticipating the Bank of Canada to maintain its interest rate at 4.5 per cent as inflation eases meaningfully, while also keeping the door open to future rate hikes if necessary.

Canada’s annual inflation rate fell to 5.2 per cent in February, marking the second month in a row it came in lower than forecast. The Bank of Canada expects the inflation rate to fall to three per cent by mid-year and back down to two per cent by the end of 2024.

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