The Bank of Canada has held its trendsetting interest rate at 5.0% for a third straight setting and talk of further increases has been all but silenced.

In the statement that came with the most recent rate announcement, The Bank offered a number of reasons for the decision to hold steady:

• higher rates are “clearly restraining spending”
• the economy “is no longer in excess demand”
• the general economic slowdown is reducing inflationary pressures

Even though The Bank said it will hike again, if necessary, most market watchers are looking into their crystal balls trying to predict when, and by how much, The Bank will be cutting rates.

The general consensus right now is for a quarter point (25 basis point) cut in April.  There are some who expect to see it a little earlier, in March.  Others say it’ll be June.

The projections for overall cuts in 2024 range between 1 and 2 full percentage points.

The Bank of Canada still has some inflation concerns, in particular, core inflation which continues to run in the 3.5% to 4.0% range.

Headline inflation, also known as the Consumer Price Index, is 3.1%; tantalizingly close to The Bank’s 1.0% to 3.0% target range.

The Bank will also be keeping a close watch on the job market.

The next interest rate announcement is set for January 24, 2024.

Published by First National Financial LP

Two key guide posts for the Canadian economy are pointing in the same direction.  Both the third quarter GDP numbers and November jobs figures suggest the Bank of Canada is unlikely to make any changes to its trendsetting interest rate in the coming days.

Canada’s economy shrank at an annualized rate of 1.1% through July, August and September.  That was a bigger decline than expected.  Market watchers had been looking for a modest 0.2% increase.  The Bank of Canada had forecast a 0.8% gain.  The country avoided falling into a technical recession though, because the Q2 reading was revised upwards to a 1.4% gain.  It had initially been posted as a 0.2% decline.  Nonetheless the economy has been on a slowing trend for several months.

The economy added more jobs than expected in November, but the unemployment rate went up.  There were nearly 25,000 jobs added, beating the forecast of 15,000.  However, that did not keep up with the country’s population growth.  Unemployment rose to 5.8%, from 5.7% in October, because there are more people looking for work.

These are the last two major economic data points before the Bank of Canada makes its December rate announcement this week.  When combined with the latest inflation numbers (up 3.1% y/y in October) the Bank appears to have all the reasons it needs to hold its policy rate at 5.0%.  That rate has not moved since July and the market focus has now shifted away from further increases and toward when there could be cuts.

Published by First National Financial LP