Will Bank of Canada hold its interest rate again? Decision set to come

The Bank of Canada left its benchmark interest rate unchanged on Wednesday and signalled it’s still too soon to ease monetary policy despite recent cooling in inflation.

The central bank’s policy rate held at 5.0 per cent in the fifth consecutive decision, with the hold widely expected by economists.

The head of the Bank of Canada also said that it’s “too early” to cut interest rates until there’s more progress in taming core inflation, according to prepared remarks from Governor Tiff Macklem.

There have been “no big surprises” in the economic data since the central bank’s hold in January, he said, but underlying price pressures are “persisting.”

“We’ve come a long way in our fight against high inflation. Monetary policy is working—inflation is coming down. But it’s too early to loosen the restrictive policy that has gotten us this far,” Macklem said in his remarks.

“The assessment of governing council is that we need to give higher rates more time to do their work.”

The Bank of Canada’s policy rate sets the cost of borrowing for institutions across the country and informs interest rates Canadians pay on debt, including mortgages and other credit products.

Efforts to tame inflation in the current tightening cycle began just over two years ago and saw the Bank of Canada raise its policy rate by 4.75 percentage points over the course of 10 hikes.

Officials at the central bank have signalled that the benchmark rate might now be high enough, shifting discussions now to how long the rate needs to stay elevated to bring inflation all the way back down to the Bank of Canada’s mandated two per cent target.

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Annual inflation cooled more steeply than expected in January, declining to 2.9 per cent from 3.4 per cent the previous month. But Macklem highlighted persistently high shelter inflation as the biggest contributor to the rising cost of living right now.

The Canadian economy managed to eke out slight gains in the fourth quarter of 2023, outpacing the Bank of Canada’s expectations for flat growth. Macklem noted that the labour market has come into better balance as of late and said there are some signs of wage pressures easing, too.

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The Bank of Canada reiterated in its statement accompanying the decision that it’s still looking for normalization in wage growth, inflation expectations and corporate pricing behaviour as it gauges where to take the policy rate next.

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CIBC chief economist Avery Shenfeld said in a note to clients Wednesday morning that the next central bank decision on April 10 will provide “greater clarity” on the rate path, alongside fresh forecasts for inflation and economic growth.

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Assuming economic data heading into that decision continues to show signs of progress in the inflation fight, Shenfeld said he believes the Bank of Canada can set expectations for a June rate cut at the next meeting.

More to come.