The Bank of Canada holds steady

Tiff Macklem is nothing if not a man of his word. Despite mounting pressures, the Bank of Canada (BoC) kept its promise and continued to hold steady on interest rates.

What happened: The BoC held the benchmark interest rate at 4.5%, making it the second straight rate decision with no movement after eight previous consecutive hikes. 

  • Inflation has been steadily falling since hitting a four-decade high of 8.1% last June and, as of this February, was down to a way less frightening 5.2%. The BoC expects it to tumble down around 3% sometime in the middle of this year.

Yes, but: Troubling indicators still dot the economic landscape. For one, wages continue to surge forward at a pace that Macklem has called inconsistent with reaching target inflation. 

  • While consumer spending has trended downward, it hasn’t trended that downward, potentially due to sustained wage growth and a boost in government spending.
  • Canada’s economy has also been surprisingly resilient, with GDP growing by 0.5% in January instead of falling or stalling. If the trend continues, it could complicate things.

Ultimately, the BoC saw the warning signs but remained confident that the full effects of rate hikes will be felt in the coming quarters—especially as mortgage costs go up, leaving homeowners with less spending cash to further stoke inflation.  

Bottom line: In a statement, the BoC said, “Data is reinforcing… confidence that inflation will continue to decline in the next few months.” However, if the economy and wage growth remain strong or inflation suddenly creeps back up, the door to another hike is always open.–QH