The decision keeps the central bank in a holding pattern with the expectation that inflation will fall quickly in the months ahead
The bank’s updated inflation forecast is little changed from January. It expects the annual rate of inflation to drop around 3 per cent by the middle of the year, from 5.2 per cent in February. Inflation is then expected to decline gradually to 2 per cent by the end of 2024.
Interest rate increases work with a lag, often taking six to eight quarters to have a full impact on inflation. The bank began tightening monetary policy in March 2022, which suggests that much of the impact of higher borrowing costs will be felt in the coming quarters, as homeowners renew their mortgages at higher rates leaving them with less money for discretionary spending.
The fight against inflation has a long way to go, but things are moving in the right direction. The annual rate of consumer price index inflation peaked at a four-decade high of 8.1 per cent last June. It has fallen steadily since then, thanks to lower energy prices and a slowdown in durable goods inflation as global transportation costs have receded.
“However, getting inflation the rest of the way back to 2 per cent could prove to be more difficult because inflation expectations are coming down slowly, service price inflation and wage growth remain elevated, and corporate pricing behaviour has yet to normalize,” it added.
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