| Consensus | Actual | Previous | |
|---|---|---|---|
| Change | 0bp | 0bp | 0bp |
| Level | 5.00% | 5.00% | 5.00% |
Highlights
The Bank of Canada on Wednesday maintained its policy interest rate -- the target for overnight lending rates -- at 5.0 percent for the fourth straight meeting, as expected, but softened its hawkish tone amid sluggish economic growth while repeating its warning that underlying inflation is persistent and wage growth is high.
The bank said it is also continuing its policy of quantitative tightening to trim the bank's balance sheet to a normal level.
The central bank's policy board is"still concerned" that inflation may stay above its 2 percent inflation target but it dropped its long-held line that it"remains prepared" to hike rates if needed, which had been repeated in recent rate announcements to cool off expectations of an early rate cut and speculative investment in the housing and other markets.
"Governing Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation," the bank said."Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour."
"Labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs being created at a slower rate than population growth," the bank said."However, wages are still rising around 4 percent to 5 percent."
In his opening remarks at a news conference, Governor Tiff Macklem said recent fluctuations in inflation means further declines in inflation are likely to be"gradual and uneven," which in turn suggests the path back to our 2 percent target will be"slow, and risks remain."
Governing Council's discussion about future policy is shifting from whether monetary policy is restrictive enough to how long to maintain the current restrictive stance, Macklem said.
"That doesn't mean we have ruled out further policy rate increases," he said."If new developments push inflation higher, we may still need to raise rates."
In response to questions, the governor repeated his recent remarks that"it is premature to discuss lowering interest rates" and that bank officials need to see"continued evidence" that inflation is easing in order to start debating for a rate cut. The bank's core inflation measures are still showing a 3.5% to 4% increase, he noted.
Economists expect the bank will wait until mid-2024 to consider lowering interest rates, with the earliest forecast for April, when the bank will provide its medium-term economic forecasts and risk analysis in the next quarterly report.
The bank will announce its next policy decision on March 6.
The BoC raised its target for overnight lending rates by a total of 475 basis points (4.75 percentage points) between March 2022 and July 2023, jacking up the key rate through 10 increases from its record low of 0.25 percent to a 22-year high of 5 percent.
The bank said it is also continuing its policy of quantitative tightening to trim the bank's balance sheet to a normal level.
The central bank's policy board is"still concerned" that inflation may stay above its 2 percent inflation target but it dropped its long-held line that it"remains prepared" to hike rates if needed, which had been repeated in recent rate announcements to cool off expectations of an early rate cut and speculative investment in the housing and other markets.
"Governing Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation," the bank said."Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour."
"Labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs being created at a slower rate than population growth," the bank said."However, wages are still rising around 4 percent to 5 percent."
In his opening remarks at a news conference, Governor Tiff Macklem said recent fluctuations in inflation means further declines in inflation are likely to be"gradual and uneven," which in turn suggests the path back to our 2 percent target will be"slow, and risks remain."
Governing Council's discussion about future policy is shifting from whether monetary policy is restrictive enough to how long to maintain the current restrictive stance, Macklem said.
"That doesn't mean we have ruled out further policy rate increases," he said."If new developments push inflation higher, we may still need to raise rates."
In response to questions, the governor repeated his recent remarks that"it is premature to discuss lowering interest rates" and that bank officials need to see"continued evidence" that inflation is easing in order to start debating for a rate cut. The bank's core inflation measures are still showing a 3.5% to 4% increase, he noted.
Economists expect the bank will wait until mid-2024 to consider lowering interest rates, with the earliest forecast for April, when the bank will provide its medium-term economic forecasts and risk analysis in the next quarterly report.
The bank will announce its next policy decision on March 6.
The BoC raised its target for overnight lending rates by a total of 475 basis points (4.75 percentage points) between March 2022 and July 2023, jacking up the key rate through 10 increases from its record low of 0.25 percent to a 22-year high of 5 percent.
Market Consensus Before Announcement
The Bank of Canada is widely expected to maintain its policy interest rate -- the target for overnight lending rates -- at 5.0% for a fourth straight meeting as it monitors the effects of the past rate hikes on economic growth and inflation.
In December, the bank's policy board said it was"still concerned" that inflation may stay above its 2 percent inflation target, keeping its hawkish tone that it"remains prepared" to hike rates if needed. Governor Tiff Macklem has repeatedly said it is too early to discuss the need for cutting interest rates.
The bank will update its medium-term economic forecasts and risk analysis in the quarterly Monetary Policy Report. Macklem and Senior Deputy Governor Carolyn Rogers will hold a news conference at 10:30 a.m. EST (1530 GMT) to discuss the rate decision and projections.
In December, the bank's policy board said it was"still concerned" that inflation may stay above its 2 percent inflation target, keeping its hawkish tone that it"remains prepared" to hike rates if needed. Governor Tiff Macklem has repeatedly said it is too early to discuss the need for cutting interest rates.
The bank will update its medium-term economic forecasts and risk analysis in the quarterly Monetary Policy Report. Macklem and Senior Deputy Governor Carolyn Rogers will hold a news conference at 10:30 a.m. EST (1530 GMT) to discuss the rate decision and projections.
Definition
Canada's central bank, the Bank of Canada (BoC), announces its monetary policy with regard to interest rates eight times a year. The announcement conveys to the financial markets and investors what, if any, changes in policy might be. The main focus is the target set for the overnight rate. Policy is framed around keeping the annual rate of inflation as measured by the consumer price index (CPI) within a 1 percent to 3 percent range and close to the 2 percent midpoint over the longer-run. To this end, the BoC also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.
Description
Bank of Canada determines interest rate policy at eight meetings during the year and they are an influential event for the markets. Prior to each meeting, market participants speculate about the possibility of an interest rate change. A post-meeting statement is issued after each meeting. Unlike the Federal Reserve, there are no post-meeting minutes. The Bank has an inflation target range of 1 percent to 3 percent with specific focus on the 2 percent midpoint.
Although the Bank monitors many economic indicators, as indeed all central banks do, the Bank converted its inflation barometer for operational purposes to a consumer price index measure that subtracts eight volatile components to better reflect core inflation. It also takes the foreign exchange rate for the Canadian dollar into its monetary policy decisions.
Monetary policy goals are to aid and abet solid economic growth along with rising living standards. To achieve these goals, inflation is kept low, stable, and predictable. The inflation control target is at the heart of Canadian monetary policy that the Bank and the Government have established. The level of interest rates and the exchange rate determine the monetary environment in which the Canadian economy operates.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.
Although the Bank monitors many economic indicators, as indeed all central banks do, the Bank converted its inflation barometer for operational purposes to a consumer price index measure that subtracts eight volatile components to better reflect core inflation. It also takes the foreign exchange rate for the Canadian dollar into its monetary policy decisions.
Monetary policy goals are to aid and abet solid economic growth along with rising living standards. To achieve these goals, inflation is kept low, stable, and predictable. The inflation control target is at the heart of Canadian monetary policy that the Bank and the Government have established. The level of interest rates and the exchange rate determine the monetary environment in which the Canadian economy operates.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.
