BREAKING: Bank of Canada likely to retain current interest rates in upcoming assessment
Opinion: Bank of Canada poised to pause interest rate hikes as inflation drops and growth stagnates
It has been a challenging year for Canadian households as the Bank of Canada aggressively raised its overnight lending rate. Over the past 12 months, borrowing costs have surged by 425 basis points, leaving households grappling with soaring debt payments. However, there could be some respite from the relentless rate hike cycle as the Bank of Canada unveils its latest interest rate policy on March 8.
Expectations are high that the central bank will live up to its promise of taking a pause and holding the key overnight rate at the current rate of 4.50%. This view is echoed by James Laird, CEO of Ratehub.ca and President of CanWise Financial, who believes that the central bank will not raise interest rates this time.
Central banks globally have had one goal for the past year – to tackle inflationary pressures. As a result, Canada also saw inflation spiral upwards, with the consumer price index (CPI) rising to 8.1% in June 2021. However, it appears that global supply chain issues are beginning to resolve, and oil prices have stabilized. As a result, inflation has also slowed to 5.9% annually, according to the latest figures released by Statistics Canada.
The Bank of Canada has noted that it will assess the impact of its cumulative interest rate increases and hold the rate at the current level if economic developments evolve broadly in line with the Monetary Policy Report (MPR) outlook.
Recent indicators suggest Canada’s economic growth rate is weak, with GDP growth stagnating through Q4 2021. December’s numbers also showed a contraction as businesses struggled to sell and consumers scaled back spending. While this may appear counterintuitive, the weak economic growth figures may be music to the ears of variable-rate mortgage holders. As Doug Porter, BMO’s Chief Economist, pointed out, a growth rate of ‘zero-point-zero’ is about as neutral as one can get, and this reinforces the view that the Bank of Canada will not be in a rush to raise interest rates soon.
– Bank of Canada raised its key interest rate to 1.75% in October 2018.
– In October 2021, the central bank raised the rate to 4.5%, marking a series of rate hikes over the year.
– Inflation peaked at 8.1% in June 2021 but dropped to 5.9% in January 2022.
– The GDP growth rate was stagnant through Q4 2021, with December’s figures showing a contraction.
– The Bank of Canada has hinted that it may take a break in 2022 after raising rates for almost a year.
The Bank of Canada will likely hit the ‘pause’ button on its rate hike cycle as inflation has moderated and GDP growth has stagnated. While consumers are still grappling with high food prices, pausing rate hikes could relieve beleaguered households. However, as the economy evolves, the central bank may need to revise its outlook and policy stance.
The Bank of Canada’s latest interest rate policy will be keenly watched as households and businesses grapple with rising debt payments and stagnant GDP growth. While a pause in rate hikes is welcome news for many, there is still much uncertainty over the economy’s path. The central bank will need to assess the impact of the cumulative rate hikes on the economy and adjust its policy guidance accordingly. Canadians can expect a pause in the relentless rate hike cycle.