Bank of Canada Holds Policy Rate at 5%, No Movement Likely Until Second Half of 2024
In
a scheduled announcement on Wednesday, March 6, 2024, the Bank of Canada decided
to maintain its target for the overnight lending rate at 5% as was widely
expected. This was its fifth consecutive hold after two interest rate hikes last
summer.
The
Bank noted that while Canada’s economy had outperformed expectations in the
fourth quarter of 2023, it nonetheless remains sluggish. The Bank also cited
various economic factors moving in opposite directions, such as declining
business investment (domestic weakness) but strong gains in exports (hot U.S.
economy), leaving the economy overall “in modest excess supply.”
The
Bank has focused in on shelter costs as the largest contributing factor to
above-target inflation. Although other components of the Consumer Price Index (CPI) are
showing signs of normalizing, core measures are still running higher than the
Bank’s preferred range. The Bank expects inflation “to remain close to 3%
during the first half of this year”, effectively ruling out any rate changes
before its June meeting.
In
addition to keeping an eye on core inflation readings, the Bank is also likely
awaiting news on spending from the next federal budget due to be tabled on
April 16, 2024, just six days after the next Bank rate announcement, as well as
the impact of the Carbon Tax increase set to come into effect on April 1.
The
Bank of Canada’s next scheduled interest rate announcement will be on April 10,
2024, and will publish its full outlook for the economy and inflation in its next
Monetary Policy Report at the same time.
Bank of Canada Holds Policy Rate at 5%, No Movement Likely Until Second Half of 2024
In
a scheduled announcement on Wednesday, March 6, 2024, the Bank of Canada decided
to maintain its target for the overnight lending rate at 5% as was widely
expected. This was its fifth consecutive hold after two interest rate hikes last
summer.
The
Bank noted that while Canada’s economy had outperformed expectations in the
fourth quarter of 2023, it nonetheless remains sluggish. The Bank also cited
various economic factors moving in opposite directions, such as declining
business investment (domestic weakness) but strong gains in exports (hot U.S.
economy), leaving the economy overall “in modest excess supply.”
The
Bank has focused in on shelter costs as the largest contributing factor to
above-target inflation. Although other components of the Consumer Price Index (CPI) are
showing signs of normalizing, core measures are still running higher than the
Bank’s preferred range. The Bank expects inflation “to remain close to 3%
during the first half of this year”, effectively ruling out any rate changes
before its June meeting.
In
addition to keeping an eye on core inflation readings, the Bank is also likely
awaiting news on spending from the next federal budget due to be tabled on
April 16, 2024, just six days after the next Bank rate announcement, as well as
the impact of the Carbon Tax increase set to come into effect on April 1.
The
Bank of Canada’s next scheduled interest rate announcement will be on April 10,
2024, and will publish its full outlook for the economy and inflation in its next
Monetary Policy Report at the same time.
