BoC Decides to Keep Interest Rates, but Canada's Latest Situation Upsets the Market! This is the reason

<p>The Bank of Canada chose to keep its benchmark rate at 5 percent on Wednesday, a move that was widely expected following signs that the Canadian economy is slowing.</p><p><br /></p><p>"With the latest evidence showing that excess demand in the economy is diminishing, and taking into account the delayed impact of monetary policy, the Central Governing Council decided to maintain the policy interest rate at 5 percent," the central bank said in a statement.</p><p><br /></p><p>The latest GDP data from Statistics Canada showed the economy shrank at an annual rate of 0.2 per cent in the second quarter, weaker than economists had expected. Canada also unexpectedly lost a net total of 6,400 jobs in July, and the unemployment rate rose for the third month in a row.</p><p><br /></p><p><br /></p><p>The Bank of Canada first paused its aggressive tightening cycle in March, leaving rates at 4.5 per cent while assessing the impact of eight consecutive rate hikes. But the central bank returned to action in June and July, raising rates by 25 basis points each, amid concerns that it would take longer to return inflation to its two percent target.</p><p><br /></p><p>The Bank of Canada noted in its statement that "the Central Governing Council remains concerned about the persistence of underlying inflationary pressures, and stands ready to increase policy interest rates if necessary."</p><p><br /></p><p>"The Central Governing Council will continue to assess the dynamics of core inflation and the prospect of CPI inflation," said the central bank. "Specifically, we will assess whether the development of excess demand, inflation expectations, wage growth and corporate price behavior is consistent with achieving the two percent inflation target."</p><p><br /></p><p>The US dollar strengthened against the Canadian currency by 0.03% to trade at 1.3644 after this report was released.</p>