After raising interest rates 10 times since early 2022, the central bank may be ready to hold steady.

The Bank of Canada has decided to keep the benchmark interest rate unchanged at five percent, marking the second consecutive time the central bank has done so, a sign that it may move to the sidelines after raising borrowing costs 10 times since last year.

This move was widely anticipated by economists and investors tracking the central bank, as a large number of data points in recent months - from GDP to jobs to inflation itself - painted a picture of an economy slowing down.

The central bank meets eight times a year to decide where to set the benchmark interest rate, known as the overnight rate target, which affects the rates that retail banks charge for short-term loans.

As with neutralizing all factors, the central bank raises interest rates when it wants to slow down an overheating economy and lowers them when it wants to stimulate borrowing, spending, and investment.

After cutting the interest rate in the early days of the pandemic to keep the economy active, the bank began aggressively raising rates in early 2022 to eliminate inflation, which had risen to its highest level in 40 years.

The bank, which raised borrowing costs from virtually zero percent to five percent in just over a year and a half, imposed restrictions on spending and borrowing, and the inflation rate struggled from 8.1 percent in the summer of 2022 to 3.8 percent last month.

From the bank's perspective, it seems inflation is moving in the right direction, but in its statement announcing its decision, the bank clarified that it does not believe the inflationary dragon has been entirely subdued yet.

The bank also stated that there is increasing evidence in Canada that previous interest rate hikes are discouraging economic activity and easing price pressures. Consumption has been weak, with a downturn in demand for housing, durable goods, and many services.

The bank expects the economy to continue to cool sufficiently to bring inflation back to its 2 percent target at some point in 2025, a forecast suggesting that the bank will be happy to remain on the sidelines until that happens. However, it has left the door open for raising rates again if necessary. Price stability is slow, and inflation risks have increased, making it prepared to raise interest rates further if needed.

In central bank language, this means the bank is indicating it is willing to increase borrowing rates by a larger amount if necessary, but investors are betting that the threat is likely just an empty threat.

Trading in investments known as swaps shows that there is about a 5% chance of an interest rate hike at the bank's next policy meeting in December. Pricing indicates that investors believe the bank's interest rate will be lower next summer than it is today.

The Canadian dollar was sold off by about a quarter of a cent because of the news. This is another sign that investors believe further interest rate hikes are unlikely.