Morning Market Brief: March 7, 2024

BoC holds at 5.00%?

As widely expected, the Bank of Canada (BoC) held its policy interest rate steady at its March meeting. This marked the fifth straight rate hold from Canada’s central bank as it seeks to bring inflation down further, while navigating the Canadian economy through a soft landing. While rate cuts appear to be on the horizon, the BoC noted it might be too soon to begin given ongoing inflationary risks.?

• The BoC held its policy interest rate steady at 5.00%, which was its fifth consecutive rate hold. Based on a Bloomberg survey, economists expected Canada’s central bank to keep its key interest rate unchanged.
• The BoC expressed its belief that a rate of 5.00% is warranted given persistent inflationary pressures. The policy statement showed officials are still concerned about the outlook for inflation, suggesting the BoC’s work to bring down inflation isn’t over.
• Canada’s central bank noted it is still too soon to consider lowering interest rates. The BoC doesn’t appear certain inflation is on a smooth path to its 2% target. While inflation is expected to come down, it could be choppy in the months to come. As a result, the BoC’s policy rate of 5.00% is still needed.
• The BoC sees signs of the labour market slowing and wage pressures easing. This could help soften elevated inflationary pressures. Meanwhile, the economy is expanding, but at a relatively muted pace.

While the BoC is presenting a relatively cautious tone, signs point to rates being lowered later this year. The same narrative came out of the US yesterday. In testimony in front of the US government, US Federal Reserve Board (Fed) Chair Jerome Powell said the Fed will likely begin lowering interest rates later this year. For now, however, inflation remains a risk, so the Fed must stay at restrictive levels to bring inflation down to its 2% target.

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