For the first
time in a year, the Bank of Canada (BoC) chose not to raise interest rates,
announcing on Wednesday that it will hold its policy rate at 4.5%.
The pause comes
after several weeks of speculation by industry experts that the bank would put an
end to its aggressive rate hike cycle in March – something the bank itself said
it hoped to do following the 0.25% January hike.
“At its
January decision, the Governing Council indicated that it expected to hold the
policy interest rate its current level, conditional on economic developments evolving
broadly in line with the MPR outlook,” the bank said in its announcement. “Based
on its assessment of recent data, Governing Council decide to maintain the
policy rate at 4.5%. Quantitative tightening is complementing this restrictive
stance.”
With
inflation having taken several small steps down in recent months, slowing to
5.9% in January, the BoC’s pause will buy it some time to see how the
already-implemented hikes will continue to impact inflation – namely, whether
they’re enough rein inflation in closer to the bank’s target of 2%.
Although the
hike-less rate announcement undoubtedly brought some relief to borrowers, that
breathing room may only be temporary. Many experts are bracing for another rate
hike to hit this year, with some predicting it as soon as April. In a February
report from BMO Economics, Chief Economist Douglas Porter noted that although
the BoC would likely take a pause on rate hikes in March, “the market is now
giving high odds to one more move.”
The bank
confirmed the possibility of further increases in its Wednesday announcement,
saying “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 inflation to the 2% target. The Bank remains resolute
in its commitment to restoring price stability for Canadians.”
Prior to the
announcement, some experts were forecasting rate cuts later in 2023. Just last
month, the BoC published the results of its Market Participant Survey, based on
responses from roughly 30 financial market participants, including senior
economists and strategists at banks, pension funds, asset management firms, and
insurance companies. The median response from participants was an expectation
that the BoC will cut interest rates by 25 basis points in October and again in
December, bringing the policy rate down to 4% by the end of the year.
Of course
predictions can only offer so much insight, and only time will tell whether there’s
another pause, hike, or cut in store.
The next
Bank of Canada rate announcement is scheduled for April 12.
Source
By: STOREYS