This article is reposted from Dominion Lending Centres
Original Article Here
On Wednesday, March 6, 2024, the Bank of Canada held the overnight rate at 5% for the fifth consecutive meeting and pledged to continue normalizing the Bank’s balance sheet. Policymakers remain concerned about risks to the outlook for inflation. The latest data show that CPI inflation fell to 2.9% in January, but year-over-year and three-month measures of core inflation were in the 3% to 3.5% range. The Governing Council projects that inflation will remain around 3% over the first half of this year but also suggests that wage pressure may be diminishing. The likelihood is that inflation will slow more rapidly, allowing for a rate cut by mid-year.
The Bank also noted that Q4 GDP growth came in stronger than expected at 1.0% but was well below potential growth, confirming excess supply in the economy.
Employment continues to rise more slowly than population growth. During the press conference, Governor Macklem said it was too early to consider lowering rates as more time is needed to ensure inflation falls towards the 2% target.
Bottom Line
The Bank of Canada expects that progress on inflation will be ‘gradual and uneven.’ “Today’s decision reflects the governing council’s assessment that a policy rate of 5% remains appropriate. It’s still too early to consider lowering the policy interest rate,” Macklem said in the prepared text of his opening statement. The Bank is pushing back on the idea that rate cuts are imminent.
High interest rates are dampening discretionary spending for households renewing mortgages at much higher monthly payments. As the economy slows in the first half of this year, the BoC will signal a shift towards easing. This could happen at the next meeting on April 10, when policymakers update their economic projections. This could prepare markets for a June rate cut.
“We don’t want to keep monetary policy this restrictive longer than we have to,” Macklem said. “But nor do we want to jeopardize the progress we’ve made in bringing down inflation.”
Dr. Sherry Cooper Chief Economist, Dominion Lending Centres
Dr. Cooper is Chief Economist of Dominion Lending Centres. Canada’s leading mortgage and leasing company with more than 3,700 members offering free expert advice across Canada. In this role, Sherry helps Canadians understand the issues surrounding their most important financial decision – buying a home.
Dr. Cooper has an M.A. and Ph.D. in Economics from the University of Pittsburgh. She began her career at the Federal Reserve Board in Washington, D.C. where she worked very closely with then-Chairman, Paul Volcker and subsequently joined the Federal National Mortgage Association (Fannie Mae) as Director of Financial Economics.
