OTTAWA — After rapidly increasing its key interest rate to fight inflation by stemming borrowing and spending, the Bank of Canada held the rate steady at 4.5 per cent on Wednesday for a second time in a row.

In a new report on the state of the economy, the central bank laid out more uncertainty about the future than it has recently.The bank’s economic forecasts are a bit stronger for this year, but it’s also contending with factors that could complicate its plans for getting inflation back to its target of two per cent.

Overall, said the bank’s governor, Tiff Macklem, “this is good news, but it is not job done.” He hinted that further increases could be needed, and that the bank’s rate could stay up for a while.

Here’s what you need to know.

Pushing up: Canada’s labour market is still tight and economic growth was stronger in the first quarter than the central bank projected the last time it publicly took stock of the economy, in January.

The inflation rates Statistics Canada recorded during the winter were lower than in previous quarters but still well above the Bank of Canada’s target of two per cent. Furthermore, “getting inflation the rest of the way back to two per cent could prove to be more difficult because inflation expectations are coming down slowly,” the bank said.

Businesses are hiking prices and wages are rising as people across the economy try to get ahead of higher costs, without increased sales or productivity to support them.

Pushing down: Right after the last time the central bank updated its rate on March 8, Silicon Valley Bank collapsed, the U.S. government took over Signature Bank, First Republic Bank needed a cash infusion and Swiss authorities stepped in to force a rescue of Credit Suisse. Stress on the financial system makes bankers and regulators more cautious.

“Consequently, some pullback in lending is expected, particularly at U.S. regional banks, which play an important role in lending to small businesses,” the Bank of Canada said. The situation has calmed, but the central bank still expects a sharp slowdown in the American economy, partly driven by the credit situation and partly by interest-rate hikes on the part of the U.S. Federal Reserve.

Growth in Europe and China, important markets for Canadian resources, is expected to weaken as well.

Within Canada, the bank expects soft business investment through the middle of 2024, with energy-transportation projects such as the Trans Mountain pipeline expansion set to finish construction and new ones not on the books (especially in light of the shift to a greener economy), while higher interest rates do their job of dampening borrowing.

Fighting governments: Inflation hurts voters’ pocketbooks and it’s difficult for politicians to resist the urge to help, even when putting more money in people’s hands contributes to the problem. The federal government is rebating more sales tax for low-income households; Quebec is cutting income taxes.

The bank factors government spending into its economic outlook and anticipated some of this in its January assessment, but it put another $25 billion in government spending into its new projections for the year.

Put it all together: “Inflation expectations have to come down further, services price inflation and wage growth need to moderate and corporate pricing behaviour has to normalize” before the bank considers its work done, Macklem said.

The broadest contours of the central bank’s forecasts have not changed much. It still expects inflation to decline to three per cent by the middle of this year and two per cent by the end of 2024. It still expects economic growth to slow this year and then pick up in 2024 and 2025. But there’s more volatility under the hood, and more concern about difficulty getting inflation all the way back to two per cent.

“With these considerations in mind, [the bank] judged it appropriate to hold rates steady while we continue to assess whether monetary policy is sufficiently restrictive to return inflation to target,” Macklem said. A cut later in the year “doesn’t look today like the most likely scenario to us.”

What’s next: The Bank of Canada is next due to update its interest rate on June 7.

Update: This story has been updated to include comments from Tiff Macklem, the Bank of Canada governor