Bank of Canada holds interest rates: What economists say – Canada Boosts

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The Bank of Canada is holding its benchmark lending fee at 5 per cent, however warned that it was ready to hike interest rates once more if crucial, including a hawkish overtone to its third consecutive maintain.

“(The bank) wasn’t yet willing to drop its warning that it could raise rates again if needed, which would definitively mark a turning point,” mentioned Avery Shenfeld, chief economist with Canadian Imperial Financial institution of Commerce, in word on the choice.

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The central financial institution, however, acknowledged that it has notched some wins from its unprecedented fee climbing cycle, which has now plateaued at 5 per cent after rising from 0.25 per cent in March 2022.

Inflation is cooling for a rising vary of products and companies, the financial institution mentioned, including that economic system “is no longer in excess demand” — a shift from the earlier assertion on the finish of October, it which it indicated the economic system was “approaching balance,” Shenfeld mentioned.

The financial institution additionally famous that the employment image is loosening with job creation not capable of preserve tempo with the rising inhabitants, resulting in a rising unemployment rate.

There stay areas of concern, the financial institution mentioned together with sticky core inflation, wage development within the vary of 4 to 5 per cent and “corporate pricing behaviour.” The financial institution additionally cited rising rents as a fear for the inflation image.

“A hold today was the only option for the BoC. Given the economic backdrop, the BoC has likely gained greater confidence that its policy stance is sufficiently restrictive,” mentioned James Orlando, an economist with Toronto-Dominion Bank.

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The subsequent Financial institution of Canada fee resolution is Jan. 24, 2024.

Right here’s what economists are saying in regards to the selections and the place they anticipate the Financial institution of Canada to go from right here.

Douglas Porter, Financial institution of Montreal

“Given the bank’s goal of restoring its inflation-fighting credibility among the broader public, the BoC could very well wait as long as possible before shifting to a dovish bias and then to cuts. Assuming the economy doesn’t weaken materially further in the next few months, the policy rate trajectory is entirely dependent on the evolution of inflation. We suspect that while the underlying trend in inflation will improve in 2024, there will be bumps along the way, keeping the Bank on hold a bit longer than the market currently anticipates. But it is safe to say that the countdown clock to rate cuts has begun, even if the bank isn’t saying so.”

Avery Shenfeld, CIBC Economics

“We weren’t expecting a definitive declaration of victory at this point, and without a new Monetary Policy Report and forecast due today, the Bank was highly unlikely to drop its warning that a further rate hike could still be possible. But current trends are clearly leaning away from that, and the Bank’s nod to broader progress against inflation and the fact that the economy is no longer clearly overheated suggest that the central bank isn’t at this point really giving much thought to additional tightening. That’s not going to move markets which had already reached the same conclusion.”

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Stephen Brown, Capital Economics

“The policy statement from the Bank of Canada was a bit more hawkish than we expected, with the bank reiterating that it is still concerned about the outlook for inflation and ‘remains prepared to raise the policy rate further if needed.’ Nonetheless, if the economy continues to weaken as we expect, then it won’t be long until the Bank pivots to interest rate cuts.

“Against the backdrop of the weakening economy and falling inflation, the Bank needs to start cutting the policy rate soon to prevent the real stance of policy becoming even more restrictive. We agree with market pricing that the first cut could come as soon as March.”

James Orlando, TD Economics

“There has been obvious weakness emanating from the housing market for a while now, but more recently, consumer spending has slowed alongside a further cooling in the labour market. But with inflation still above three per cent, we get why the BoC isn’t ready to declare victory. Instead, the BoC seems like it is preparing to sit on the sidelines for the next couple of months while maintaining its cautious rhetoric.

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“Markets don’t think the BoC will be able to get too comfortable. The next move is clearly a cut, with odds pointing to the first move in April. We agree. The next few months are going to be challenging given our expectation that the unemployment rate will continue to rise, which will hit consumer spending and bring inflation down along with it. No wonder the Canada two- and 10-year yields have fallen approximately 90 basis points over the last two months.”

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