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The Bank of Canada is holding its key interest rate steady for the first time in a year while reiterating its wait-and-see approach to monetary policy.

The central bank said Wednesday that it has decided to hold its key rate at 4.5% based on its assessment of recent economic data.

“Governing council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return to the 2% inflation target,” the Bank of Canada said.

The central bank rapidly raised its key interest rate over the last year, bringing it from near-zero to the highest level since 2007.

In January, the Bank of Canada announced an eighth consecutive rate hike and said it expects to maintain its key interest rate if economic developments stay broadly in line with its forecasts.

Economists were widely expecting the Bank of Canada to hold its key interest rate Wednesday, noting it would be too soon to raise rates again. The economy has also generally moved in the right direction for the central bank, which is aiming to slow economic activity.

“There really were no significant surprises here,” said Douglas Porter, BMO’s chief economist, in a note about the decision.

Recent data showed inflation slowed to 5.9% in January while the economy posted no growth in the fourth quarter.

The central bank noted “the labour market remains very tight,” but said it expects it to ease and for wage growth to moderate.

It also still expects the annual inflation rate to fall to around 3% by mid-year.

Stephen Gordon, economics professor at Laval University in Quebec City, said it would take a “surprise” for the Bank of Canada to jump back in and raise interest rates further.

Barring any unforeseen events, inflation in Canada is expected to continue to slow this year because of base year effects.

A base-year effect refers to the impact of price movements from a year ago on the calculation of the year-over-year inflation rate.

Given much of the acceleration in price growth happened in the first half of 2022 as the threat of Russia invading Ukraine turned into a reality, the annual inflation rate is expected to continue to slow in the coming months.

“Right now, we can expect inflation to keep tracking down,” Gordon said.

Interest rate hikes can also take up to two years to be fully felt in the economy, meaning more time is needed for the economy to react to previous hikes.

Globally, the Bank of Canada says economic developments have evolved broadly in line with its forecasts. However, it said the strength in China’s economic recovery and the impact of Russia’s war in Ukraine are still “upside risks” that could push up inflation.

The Bank of Canada’s policy is diverging from the Federal Reserve, which signalled recently it plans to continue raising interest rates.

Gordon said U.S. monetary policy does have implications for Canada. Higher interest rates in the U.S. could attract investment there, weakening the CanadianĀ dollarĀ and raising prices of imports for Canada.

But Gordon said the Bank of Canada doesn’t automatically have to follow the Fed.

Porter said there are “limits” to how much the Bank of Canada can diverge from the Federal Reserve. He also noted the economies are linked and experience similar pressures, meaning if one country needs higher interest rates, the other likely does too.

“If the U.S. economy is really showing more underlying strength and greater inflation pressures, those will probably get eventually reflected in Canada as well,” he said.

The Bank of Canada will make its next interest rate decision on April 12, accompanied by updated forecasts in its quarterly monetary policy report.