On Wednesday, the Bank of Canada announces whether it will hold, raise, or cut its overnight rate..The bank held its rate at 4.5% in two previous announcements this year, and most analysts expect the same this week..“The announcement will most likely be a rate hold. The bank’s previous commentary highlighted [its] commitment to holding rates as long as economic and inflation data moves in the right direction. There has been no new data that would shift their forecast,” says James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender..“Inflation continues to trend in the right direction, but remains elevated. It would be a surprise if next week’s announcement is anything other than a rate hold.”.What will be interesting, added Laird, is the commentary provided by the bank “to see whether there is any change in direction to their policy for the remainder of the year,” he says..Wow.ca, a Canadian financial services website, expects no movement this year..“We anticipate the Bank of Canada will maintain the policy rate at 4.5% throughout the remainder of 2023, despite Canadian inflation currently standing at 5.2%, well above the bank's target of 2%. The bank estimated the neutral policy rate, the overnight rate that facilitates stable economic activity without causing either an economic slowdown or acceleration, to be approximately 2.5%.”.Perch, an online mortgage comparison site, says the bank remains cautious as it keeps its eyes on inflation..“With the next rate announcement scheduled for April 12, the Bank of Canada is expected to continue its pause on further rate hikes. However, they remain cautious, warning Canadians of the possibility of further increases “if needed” to return inflation to the 2% target.”.From the country’s private banks:.CIBC analysts see the overnight rate grounded at 4.5% over the balance of the year, saying the bank needs a clearer picture of where growth and inflation are headed in order to either opt to hike again or, more definitively, set aside that prospect. Avery Shenfield, chief economist, said “the economy is likely to slow in subsequent quarters without further hikes due to the lagged impacts of prior rate increases.”.RBC economists believe the likely scenario is the bank will not need to hike interest rates further this year, cautioning that call could depend on whether the previous hikes are enough to slow consumer spending and labour market momentum in the months ahead..TD Bank senior economist James Orlando said the strong labour market and financial support from some levels of government in Canada are “juicing the economy” at a time the bank needs to see the opposite..“If this momentum continues, it could cause inflation to spike again, forcing the bank back into hiking mode in the coming months,” said Orlando..Scotiabank’s Derek Holt said “the risks are still tilted toward the bank not being done and perhaps having to come back off the sidelines depending on the data.”.BMO’s Douglas Porter expects the bank to stay on hold through the rest of this year. The key takeaway is the bank seems to have subtly loosened any commitment to remain on pause, as the forward-looking language refers to the need to continue to “assess economic developments.” Clearly, the bank wants to keep its options open if inflation doesn’t go its way or if the job market continues to sizzle..“The Bank of Canada’s job is never easy, it is especially difficult today,” writes Trevor Tombe on The Hub..“A pause in any further rate increases is entirely warranted and we may even see cuts in the not-too-distant future. But since rate hikes over the past year may have unusually long-lasting consequences for Canada’s economy, our central bank’s job of managing recent disruptions is far from over.”.Tombe is a professor of economics at the University of Calgary and a research fellow at The School of Public Policy.
