The Bank of Canada left the benchmark interest rate at five per cent Wednesday, insisting that borrowing costs need to stay high to get inflation back to target, despite weak economic growth. Here’s what you need to know: 

Killjoys: Bank of Canada governor Tiff Macklem and his deputies were unmoved by faster-than-expected growth in the fourth quarter. They observed that the one per cent rate that Statistics Canada clocked in the fourth quarter was slower than the central bank’s estimate of the rate at which the economy can grow without stoking inflation. The bank described consumption as “modest” and the decline in business investment as “large.” 

At another time, such an assessment of the economy would call for stimulus. However, the central bank hasn’t wrestled inflation back to target, and that ultimately is its only job. Prices of an unusually large number of items in the consumer price index continue to grow at three per cent or faster, and shelter costs show no sign of coming down. The Bank of Canada is stuck. 

“We don’t want to keep monetary policy this restrictive for longer than we have to,” Macklem said in remarks prepared for his post-decision press conference. “But nor do we want to jeopardize the progress we’ve made in bringing inflation down.”

Two down, three to go: The Bank of Canada has been saying for a while now that five things need to happen before it can start cutting interest rates. Policymakers appear to have checked two of those boxes. The central bank reiterated today that higher interest rates have choked demand to the point that the economy is now in “excess supply,” meaning there’s no inflationary pressure coming from spenders. It also said that wages appear to have stopped rising, removing another source of upward pressure on prices. 

But the other items on the Bank of Canada’s checklist remain concerns. Measures of core inflation, which remove volatile items such as food and energy, are still above three per cent, even though headline inflation dropped to 2.9 per cent in January. The public’s expectations of where inflation is headed in the short term remain higher than the two per cent target, so there’s a risk higher inflation could become a self-fulfilling prophecy. And as far as the central bank can tell, corporate pricing behaviour hasn’t returned to normal. 

The bank’s “governing council remains concerned about the persistence of underlying inflation, and we want to see a further deceleration in core inflation in the coming months,” Macklem said. 

Bottom line: No one was expecting much from the Bank of Canada today, and the central bank delivered on those expectations. The hint that wages may have dropped off the list of concerns is marginally interesting. But shelter costs remain a barrier to rate cuts, even though the economy is demonstrably weak. Most Bay Street forecasters see the first rate cut coming in June or July. Policymakers said nothing today that will force any of them to change their outlooks.