Bank of Canada keeps rates unchanged

Yesterday’s Announcement

The Bank of Canada held its second meeting this year. An announcement was made this Wednesday, keeping the rates were they where for the last five meetings at 5%. The last time the rate was increased was in July of 2023, and it’s at its highest level in 22 years.

Historical Context

Following a series of swift interest rate increases in 2022 and 2023, recent statements from the Bank have been largely predictable, with the latest announcement being no exception. The market had almost entirely discounted the possibility of a rate reduction today, although there is a more optimistic outlook for potential rate decreases in April or June.

Current Decision

The Bank expressed its ongoing concern about inflation risks, stating that it needs to see “continued and sustained easing” in core inflation in the coming months. Inflation fell more than anticipated at the last reading, reaching 2.9% as the consumer price index (CPI) moved closer to the Bank’s target rate.

Economic Resilience

Contrary to recession predictions, the Canadian economy has shown resilience, growing at an annualized rate of 1.0% in the fourth quarter, with the gross domestic product (GDP) also likely seeing an increase in January.

Pandemic Response

At the start of the pandemic in 2020, the Bank of Canada drastically reduced its benchmark rate to a record low of 0.25%, easing borrowing costs as the escalating public health crisis brought the economy to a standstill. The Bank maintained this rate for nearly two years, breaking this trend with a 25-basis-point increase in March 2022 due to rising inflation concerns, followed by nine more hikes until July.

Inflation Trends

With inflation steadily falling from a 39-year peak of 8.1% in the summer of 2022, the central bank has recently softened its stance on the likelihood of further increases. At the end of last year, Governor Tiff Macklem all but confirmed that rate cuts were imminent.

In January, while keeping rates steady, the central bank removed language from previous statements suggesting a bias towards further increases. Economists polling had predicted no change in today’s announcement, with the first move in the Bank’s rate-cutting campaign likely to occur in June.

Future Predictions

Economists anticipate that the Bank will lower the policy rate to 3% by the end of 2025, with traders estimating a 33% chance of a rate cut at the next meeting, scheduled for April 10.

Remaining 2024 Bank of Canada Rate Meetings

The following are the remaining scheduled dates for Bank of Canada policy interest rate announcements:

  • Wednesday, April 10
  • Wednesday, June 5
  • Wednesday, July 24
  • Wednesday, September 4
  • Wednesday, October 23
  • Wednesday, December 11

The remaining Monetary Policy Report will be published concurrently with the April, July, and October rate announcements. The Bank also published its schedule for the release of the Business Outlook Survey and the Canadian Survey of Consumer Expectations, and the Financial System Review. The scheduled dates for the release of the 2024 issues of the Business Outlook Survey and the Canadian Survey of Consumer Expectations are as follows:

  • Monday, April 1
  • Monday, July 15
  • Friday, October 11

The Financial System Review is scheduled for Thursday, May 9.

Conclusion

In summary, the Bank of Canada’s today’s decision to maintain its key interest rate at five percent reflects a cautious approach amid economic recovery and inflationary pressures. With ten interest rate hikes since March 2022, the central bank aims to balance economic growth and inflation management. Borrowers and savers alike will be impacted by this decision, while future rate adjustments remain contingent on evolving economic conditions.

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