OTTAWA—The Bank of Canada on Wednesday left its policy interest rate unchanged at 5%, saying there is evidence higher rates are working to slow price increases across the economy.

The central bank said in an accompanying statement that officials now believe neither the labor market nor the overall economy are overheated. Data “suggest the economy is no longer in excess demand,” or a period in which producers can’t meet consumer and business appetite for goods and services, the Bank of Canada said.

The statement said officials remain concerned about upside risks in the inflation outlook, and added they are ready to raise rates again if necessary. Still, economists said the central bank toned down its language on forward-looking guidance, suggesting officials are slowly setting the stage for interest-rate cuts later in 2024.