Steve Ambler is a professor of economics at the Université du Québec à Montréal and the David Dodge Chair in Monetary Policy at the C.D. Howe Institute, where Jeremy Kronick is associate vice-president and director of the Centre on Financial and Monetary Policy. The Bank of Canada held its policy rate at 5 per cent Wednesday – a smart move. Although the central bank’s governing council may have made its decision ahead of the weak GDP numbers released last week, those numbers underlined the...

On Wednesday, the Bank of Canada increased its policy rate to 5 per cent, a level not seen since March, 2001. Citing continuing tightness in labour markets and still-firm consumer spending, the bank reasoned there is still excess demand in Canada’s economy, and that Wednesday’s rate hike was necessary to continue to bring activity in line with productive potential. But if that adjustment is already happening, this hike may turn out to be one too many. Among the many challenges a central bank...