Why did the Bank of Canada decide to leave its key rate unchanged?

Recent evidence, including labour market, inflation and GDP reports, shows excess demand in the economy is easing, the central bank said in its news release. Monetary policy works with a lag, and so the bank is leaving the rate where it is because it expects the effects of rate hikes will continue to work their way through the economy, further slowing it down.

“Interest rates are already at levels that the central bank views as ‘restrictive’ enough to put downward pressure on economic growth and inflation pressures over time,” wrote RBC assistant chief economist Nathan Janzen in a note analyzing the decision.

Inflation has eased from its highs a year ago, cooling to 3.3% in July. The bank’s target is 2%.

Meanwhile, Canada posted a negative second-quarter GDP, and the unemployment rate has been on the rise for three consecutive months.