The Bank of Canada held its overnight rate at 4.5%, after eight consecutive increases that began March 2 last year..The bank was encouraged by cooling economic factors, in particular the rate of inflation..“Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services,” said the bank in a statement. “Price increases for food and shelter remain high, causing continued hardship for Canadians. With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease.” .“This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.”.In its statement, the bank said economic growth in Canada came in flat in the fourth quarter of 2022, lower than it projected..“With consumption, government spending and net exports all increasing, the weaker-than-expected GDP was largely because of a sizeable slowdown in inventory investment,” said the bank. “Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand.”.“The labour market remains very tight. Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated. Wages continue to grow at 4% to 5%, while productivity has declined in recent quarters.”.The bank expects the consumer price index will come down to around 3% in the middle of 2023. .“Year-over-year measures of core inflation ticked down to about 5%, and three-month measures are around 3.5%,” it said. “Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.”.The next rate announcement is on April 12, with the bank saying it is taking much the same stance it did in January..“At its January decision, the Governing Council indicated it expected to hold the policy interest rate at its current level, conditional on economic developments evolving broadly in line with the MPR outlook,” it said. “Based on its assessment of recent data, Governing Council decided to maintain the policy rate at 4.5%. Quantitative tightening is complementing this restrictive stance.” .“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.”.Two market watchers from a Finder.com panel said they believe the bank will leave its rate where it is for the time being..“We expect the Bank of Canada will hold the policy rate steady at 4.5% through 2023, before gradually easing rates to a neutral level beginning sometime in early 2024,” says Tony Stillo, director of Canada economics at Oxford Economics..“The BoC has now 'conditionally paused' hiking the policy rate as it assesses the impact of past rate increases on the economy. While recent remarks by Governor Macklem and other bank officials clearly suggest greater concern for upside risks to inflation and a preference for over-tightening monetary policy to tame it, the BoC's conditional pause reflects a higher bar for additional rate increases.”.Stephen Brown, chief deputy North American economist at Capital Economics, suggests the bank could begin lowering the rate in the fall..“The fall in CPI inflation in January and stagnation in fourth-quarter GDP mean there is little chance of the Bank of Canada resuming interest rate hikes, but concerns about the tight labour market and the prospect of more restrictive policy elsewhere mean the bank won’t rule out the possibility that rates might rise further,” says Brown..“As inflation should fall sharply in the next six months, we expect the bank to be ready to slowly cut interest rates again in October.”
