The Bank of Canada left its benchmark interest rate unchanged on Wednesday and continued to warn future hikes aren’t off the table, even as market watchers shift their eyes toward rate cuts in 2024.

The central bank kept its policy rate at 5.0 per cent in its third consecutive decision and its final rate announcement of 2023.

In a statement announcing the widely expected hold, the Bank of Canada pointed to a weakening economy and easing in price pressures like consumer spending as signs that tighter monetary policy is working to bring down inflation.

Overall inflation cooled sharply to 3.1 per cent in October, down from a peak of 8.1. per cent in June 2022. Canada’s economy meanwhile contracted in the third quarter with a steeper drop than most forecasts expected.

But the Bank of Canada’s governing council warned that it “remains prepared to raise the policy rate further” if it doesn’t see more signs of progress in its preferred core inflation metrics and other factors like wage growth, inflation expectations and consumer price setting behaviour.

The central bank has raised its policy rate 4.75 percentage points since March 2022 in an effort to slow economic growth, discourage spending and rein in demand, while also making loans like mortgages more expensive for Canadians.

Bank of Canada governor Tiff Macklem said in a speech last month that the “excess demand” that was fuelling inflation has been stripped out of the economy — language that was mirrored in Wednesday’s statement.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO Capital Markets, tells Global News that inflation is indeed likely to head “lower” in the months ahead with expectations the economy will continue to slow.

“But that doesn’t mean it’s going to move in a straight line,” he warns, citing some possible bumps in the road back to the Bank of Canada’s two per cent inflation target, a goal it currently has set for mid-2025.