Bank of Canada announces key interest rate decision

The Bank of Canada (BoC) today announced its key interest rate decision, electing to hold rates steady at five per cent. While the decision to hold was largely predicted ahead of the meeting, there was some speculation around a potential cut priced into the market.

Earlier in the year, given signs of a slowing economy, many analysts had predicted that the Bank of Canada would begin its interest rate cutting cycle in spring. Stronger than expected economic performance so far this year, and a still sticky rate of inflation, has prompted many to revise their outlook for future rate cuts, with predictions that a cut may come at the June or July announcements.

“In Canada, economic growth stalled in the second half of last year and the economy moved into excess supply. A broad range of indicators suggest that labour market conditions continue to ease,” the decision announcement reads. “Employment has been growing more slowly than the working-age population and the unemployment rate has risen gradually, reaching 6.1% in March. There are some recent signs that wage pressures are moderating.”

The announcement includes a forecast that economic growth is set to pick up in 2024 on the back of strong population growth and a recovery in household spending. The Bank forecasts GDP growth of 1.5 per cent in 2024 overall. 2.2 per cent in 2025 and 1.9 per cent in 2026.

In commentary previewing the interest rate announcement earlier this week, RBC Global Asset Management Chief Economist Eric Lascelles noted that while we do expect cuts to come, BoC governor Tiff Macklem has been muted in his tone and has not promised cuts this year the way his counterpart at the US Federal Reserve has.

Lascelles attributes some of that caginess to fears that any rate cut may pour gasoline on the smouldering Canadian housing market. Given the issues of housing affordability currently plaguing Canada, Macklem may be loathe to signal when a cut comes for fear that it sends house prices higher once again.

“Monetary policy is working. Total consumer price index (CPI) and core inflation have eased further in recent months, and we expect inflation to continue to move closer to the 2% target this year,” the opening statement to Macklem’s press conference reads. “growth in the economy looks to be picking up. We expect GDP growth to be solid this year and to strengthen further in 2025… as we consider how much longer to hold the policy rate at the current level, we’re looking for evidence that the recent further easing in underlying inflation will be sustained.”

Source: Wealth Professional