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key rate |  The Bank of Canada says it has taken into account the effects on mortgages

key rate | The Bank of Canada says it has taken into account the effects on mortgages

(Ottawa) Bank of Canada Governor Tiff Macklem said the central bank kept its key interest rate at 5% partly because of the impact the wave of mortgage renewals coming in the coming months should have on the economy.

Mr. Macklem appeared before a Senate committee on Wednesday alongside Deputy Governor Carolyn Rogers, following the Bank of Canada’s latest decision on interest rates and monetary policy.

The governor explained that the central bank maintained the key interest rate because it knows that the effects of previous interest rate hikes are still rippling through the economy, including through mortgage renewals.

One big reason we kept the interest rate at 5% is because we know these renewals are coming. So we know there’s more to come than what we’ve already done. That is why we expect lower growth.

Tiff Macklem, Governor of the Bank of Canada

As more people renew their mortgages at higher interest rates, households are expected to feel the impact of interest rate increases more directly, slowing the economy further.

Mr. Macklem stressed that the Bank of Canada does not want to see the country enter a recession, but a period of slow growth is necessary to combat inflation.

“We want to avoid a recession,” the governor repeated in French.

In its latest monetary policy report, the central bank lowered its economic growth forecasts and increased its short-term inflation forecasts. The Bank of Canada still expects inflation to return to 2% in 2025.

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Recent data from Statistics Canada suggests the economy may have slipped into a mild technical recession, as rising interest rates weigh on household spending.