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Randall Bartlett
Senior Director of Canadian Economics
Bank of Canada (BoC) - In Like a Lion, Out Like a Lamb in 2023?
The Bank of Canada hiked the overnight rate by 25 bps today, matching market expectations. This was the smallest hike since March 2022, taking the Bank’s policy rate to 4.50%, 425 bps higher than where we were a year ago. Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases. It nonetheless kept the option of further hikes on the table if they proved necessary. According to the Bank, stronger-than-expected growth recently and still tight labour markets point to “… persistent excess demand putting continued upward pressure on many prices, …” Meanwhile, the Bank made clear that “… there is growing evidence that restrictive monetary policy is slowing activity, especially household spending. Importantly, the Bank of Canada recognized that while inflation remains elevated, it looks to have come off its peak and “… is projected to come down significantly this year.” This suggests to us that the next move by the Bank of Canada is likely to be a cut as inflation falls through the year on the back of a recession starting in the first half of 2023. The cut could come before the year is out, helping to spur a rebound in 2024.
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