By Paul Vieira
OTTAWA--The Bank of Canada held its main interest rate steady on Wednesday at 0.25%, but said rate increases are on the horizon to deal with elevated inflation.
In its statement, the central bank said it was removing its exceptional forward guidance, which previously indicated rate rises would likely start in either the second or third quarter after excess capacity had diminished. "The governing council expects interest rates will need to increase, with the timing and pace of those increases guided by the bank's commitment to achieving the 2% inflation target."
The central bank said it now judges that spare capacity in the economy has largely disappeared. In an accompanying economic outlook, the central bank said officials are worried that higher-inflation expectations will become entrenched among households and businesses.
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