The Bank of Canada’s March Decision Leaves Experts Wondering What’s Next

On March 8, the Bank of Canada announced it would leave its benchmark interest rate unchanged at 4.5 percent. This decision was no surprise to economists who had been expecting the bank to hold steady for a few months. However, some are now wondering if another rate hike could be in the cards sooner rather than later.

What Does the Bank of Canada’s Statement Mean?

According to some experts, the bank’s statement has a “hawkish tone,” which could suggest that the bank is losing confidence that the interest rate hikes it has implemented over the past year will be enough to bring inflation down to two percent. In addition, the bank’s language has also changed, stating that it “will continue to assess economic developments” rather than saying it “expects” a certain outcome. This could indicate that the bank is considering additional interest rate hikes if inflation continues to be a problem.

Expert Opinions

Charles St-Arnaud of Alberta Central believes the bank’s decision shows that interest rates will remain on hold. However, the bank remains committed to restoring price stability and is ready to increase rates if inflation doesn’t ease as expected. According to St-Arnaud, the risks are tilted toward another hike if inflation remains a problem, and the labor market is tight.

Douglas Porter of BMO Economics feels there isn’t much new information in the bank’s statement. However, he does note that the bank has signaled that it is monitoring the ongoing housing and consumer debt situations, which could indicate that those issues could play a role in future interest rate conversations.

Finally, Tony Stillo of Oxford Economics believes that if the Federal Reserve raises its target rate by 100 basis points, the Bank of Canada may be forced to increase its rates to avoid a much weaker Canadian dollar and higher import prices.

Related Facts

• Since March 2022, the Bank of Canada has implemented interest rate increases totaling 425 basis points.
• Inflation in Canada currently stands at 5.9 percent.
• The next reading on Canadian inflation is scheduled for March 21.

Key Takeaway

The Bank of Canada’s decision to hold steady has left some experts wondering if another rate hike could be on the horizon. With inflation still a concern and the tight labor market, the bank may be forced to take further action to restore price stability.

Conclusion

While the Bank of Canada’s decision to hold steady was expected, the bank’s statement has some experts thinking there could be further interest rate hikes soon. Moreover, with inflation still higher than desired and the tight labor market, the bank may be forced to take action to restore price stability if necessary.