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The latest on the Bank of Canada's interest rate decision

The Bank of Canada held interest rates steady while downgrading its forecast for economic growth and warning that inflationary risks have increased. The widely anticipated decision keeps the policy rate at 5 per cent, the highest level in two decades.

The bank said it was prepared to raise interest rates again if inflation remains stubbornly high.

Find updates from our reporters and columnists below.

12:45 p.m. ET

What’s next?

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Deputy Prime Minister and Minister of Finance Chrystia Freeland says the fall economic statement, expected to be released in the next few weeks, will focus on housing and affordability.Adrian Wyld/The Canadian Press

  • The next Bank of Canada interest rate decision – the last of the year –will happen on Dec. 6.
  • The next main event on the Canadian economic calendar is the federal government’s fall economic and fiscal update. No date has been finalized yet, but it is expected to be released in the coming weeks. The update will include details about the health of federal finances and new deficit and debt projections.
  • Statistics Canada will release October Consumer Price Index data on Nov. 21. It will publish August GDP numbers on Oct. 31 and October jobs numbers on Nov. 3
  • Bank of Canada senior deputy governor Carolyn Rogers will deliver a speech in Vancouver on Nov. 9, followed by a speech by Governor Tiff Macklem on Nov. 22 in Saint John.
  • The European Central Bank has a rate decision on Thursday, while the U.S. Federal Reserve has a rate decision on Nov. 1. Analysts widely expect both central banks to hold rates steady.

– Mark Rendell

12:01 p.m. ET

Macklem: ‘We should see some continued easing in food price inflation’

“There’s no question, food price inflation has particularly affected lower-income, more vulnerable members of society. This is an important reason why we’ve got to get inflation down.

“If you look at the input – if you look at agricultural prices – they have come down a fair amount, and you are seeing food price inflation come down with a lag. The latest year-over-year number is about 6 per cent. On a three-month basis, it’s just under 4 per cent. So, I mean what that’s telling you is we should see some continued easing in food price inflation. And I think that will be a relief to all Canadians.”

– David Parkinson

12 p.m. ET

What Macklem is watching to determine if more hikes are needed

“We want to see clear evidence that core inflation is moving down. That will give us more confidence that headline inflation will move down towards our target on a sustainable basis … In assessing that, we have two preferred measures of core inflation – CPI-trim, CPI-median – we’re going to be watching those very closely.”

“There’s a few guideposts we use that we know affect underlying inflation. Those are the balance between demand and supply in the economy. Wage growth at 4 to 5 per cent, with virtually no productivity growth, is not consistent with getting inflation back to our target. Corporate pricing behaviour: When inflation went up a lot, we saw companies were increasing their prices more frequently, and they were increasing them by more. That has started to normalize but it’s still not back to normal.”

“If those things are starting to normalize … we probably won’t have to raise interest rates. But we’ve been very deliberate: we’re leaving the door open to further interest rate increases because there is uncertainty about that, and if we see inflationary pressures persist, we are prepared to raise our interest rate further.”

– Mark Rendell

11:48 a.m. ET

Rogers on the impact of elevated bond yields

“It’s not a substitute for what the bank needs to do. To the degree that the increase in yields is sort of adding to what central banks are doing, it could be a bit of an offset to future increases, but it’s really hard to disentangle the effects on yields.”

– David Parkinson

11:42 a.m. ET

Macklem says Canada is not in a period of ‘stagflation’

“It’s not a word I would use. I grew up in the 1970s. Stagflation to me is a period of high inflation and high unemployment. That’s not where we are now. Inflation is well above our target, it’s too high. But it’s not high like it was in the ‘70s. And the unemployment rate actually is quite low, 5.5 per cent is below historical norms.”

– Mark Rendell

11:41 a.m. ET

Macklem says government spending is growing at 2% or less

“Our best estimate is the potential output in the economy is growing at about 2 per cent. So supply in the economy is expanding around 2 per cent. Government spending is growing at 2 per cent or less. It’s not adding more demand. It’s not adding faster demand, and supply is growing. So, it’s not adding sort of undue inflationary pressures.”

“If you look at our forecast in the Monetary Policy Report, what you can see is that when we add up the spending plans in the budgets of all levels of government - provincial, federal - for next year, we expect government spending to grow at about two-and-a-half percent. So, what that means is if all those spending plans are realized, government spending will be adding to demand more than supply is growing. And in an environment where we’re trying to moderate spending and get inflation down, that’s not helpful.”

– David Parkinson

11:36 a.m. ET

BoC’s senior deputy governor Carolyn Rogers: ‘We’re not seeing decline in house prices that we would expect’

“Normally, house prices move pretty lockstep with interest rate increases… As interest rates come down, house prices go up a bit. And they’ll come off as interest rates come back up.”

“We haven’t seen that same dynamic. [House prices] they’ve come off a bit this time … but we’re not seeing the decline in house prices that we would expect.”

“There is a structural lack of supply in the Canadian housing market. So really until we address that, that supply issue, interest rates on their own are not going to help us get back to a housing affordability situation or solution. So we’re really pleased to see the degree of focus that governments are putting on this issue right now.”

– Mark Rendell

11:35 a.m. ET

Macklem on high energy prices

“Typically, we would tend to largely look through [energy price spikes], and the reason for that is that it takes time for monetary policy to work. These increases in oil prices, they tend to go up and then after a period they tend to come back down. Some of the time monetary policy is really working, the shocks going away.”

“However, that’s not the situation we’re in right now. Inflation has been above the target for two years…. Near-term inflation expectations are still above the target… Corporate pricing behaviour is not normal... If we saw evidence that higher energy prices were passing through to broader prices because of higher transportation costs, for example, that would be a signal that that increase in oil prices is starting to feed through the rest of the economy and that would really be something of concern to us.”

– Mark Rendell

11:29 a.m. ET

Macklem reflects on the chances of a recession

“It’s not a recession, it’s low positive growth. Having said that, if you’re predicting low positive growth, you can’t rule out that … we’re going get some small negative numbers. So, there could certainly be two or three small negative quarters.”

“When people say the word recession, I think what they have in mind is a steep contraction of output and a large rise in unemployment. That’s not what we’re forecasting. I’ll just close by saying, you know, we’ve been saying for some time that the path to a soft landing is narrow. And in this projection, that path has gotten narrower.”

– David Parkinson

11:27 a.m. ET

Macklem: ‘Corporate pricing behaviour is not normal’

“Corporate pricing behaviour is not normal. What we’ve seen is companies are passing through higher input costs more quickly than usual to final prices. So consumers are feeling it right away. Against that environment, we would need to be more cautious than normal about seeing through it. And what we’d be particularly focused on is the impacts on core inflation.”

– David Parkinson

11:25 a.m. ET

Macklem says there’s been ‘very little’ downward momentum on inflation

“To be confident the policy rate is high enough to get inflation back to 2 per cent, we need to see downward momentum in our measures of core inflation.”

“Core inflation on a year-over-year basis has come down, but if you look over the last good eight months or so, on a three month basis, there’s really been very little downward momentum. We need to see clear downward momentum in core inflation. And there are a number of indicators that we’re watching closely.”

“We’re going to take our decisions one at a time, based on the best available data and information at the time of that decision.”

– Mark Rendell

11:25 a.m. ET

Macklem on weakness in the Canadian dollar

“What we’re not getting [from high interest rates] is we’re not getting the direct effect of an appreciation to lower important inflation. So that does mean, everything else equal, we’ve got to rely more on interest rates. So that is something we’ve had to take into account.”

– David Parkinson

11:20 a.m. ET

Macklem says BoC trying to balance over- and under-tightening as inflation risks rise

Bank of Canada governor Tiff Macklem said the bank’s stand-pat decision on Wednesday reflected its “best efforts to balance the risks of over- and under-tightening” as inflation risks increase.

“We held our policy rate steady today because monetary policy is working to cool the economy and relieve price pressures, and we want to give it time to do its job. But further easing in inflation is likely to be slow, and inflationary risks have increased,” Mr. Macklem said in a news conference, shortly after the bank announced it was keeping its policy rate at 5 per cent.

“If inflationary pressures persist, we are prepared to raise our policy rate further to restore price stability,” he added.

He said that higher borrowing costs are working to slow the economy and bring supply and demand back into balance.

“With the economy already or soon to be in excess supply, more downward pressure on inflation should be in the pipeline,” he said.

Despite this, the bank increased its forecast for inflation. It now expects the annual rate of inflation to average around 3.5 per cent for the next year, higher than its last estimate in July, before falling back to the bank’s 2-per-cent target around the middle of 2025.

“Higher energy prices, structural pressures in our housing market and stickiness in underlying inflation are all slowing the return to target,” Mr. Macklem said. He pointed to geopolitical risks in particular.

“In a more hostile world, energy prices could move sharply higher and supply chains could be disrupted again, pushing inflation up around the world.”

– Mark Rendell

11:15 a.m. ET

Analysis: Takeaways from BoC’s quarterly Monetary Policy Report

As we anticipated, the key economic forecasts in the Bank of Canada’s quarterly Monetary Policy have undergone a significant overhaul.

The bank has slashed its GDP growth forecasts for this year and next to 1.2 per cent (from 1.8 in July) and 0.9 per cent (from 1.2), respectively. The new 2023 forecast is in line with private-sector projections, though the bank’s 2024 call is a touch higher than the private-sector consensus of 0.7 per cent.

Notably, the bank still sees small but positive growth in the third and fourth quarters of this year – so, no “technical recession” of two consecutive quarters of decline, following the economy’s small contraction in the second quarter. On a quarterly basis, the bank doesn’t forecast any further than that.

However, on the all-important inflation front, the bank has raised its projections. It sees inflation at 3.3 per cent in the fourth quarter (up from 2.9 per cent in the July outlook), and averaging 3 per cent next year (up from 2.5 per cent). Importantly, it has left its projected return to its 2-per-cent target essentially unchanged, in 2025. (In July, it was talking about “the middle of 2025″, and now, it’s being less specific about the time of year. But in the rate announcement itself, it characterizes the timing as “about the same time as in the July projection.”

So, basically, what we’re looking at is a higher starting point for inflation, but a slower economy, which implies that the inflationary heat will dissipate more quickly than previously forecast. Bringing us to the finish line at roughly the same time.

– David Parkinson

11:10 a.m. ET

Analysis: Takeaways from the Bank of Canada interest-rate announcement

What’s striking about this Bank of Canada interest-rate announcement is the last paragraph – always the key element to the statement, as it serves as the bottom line for the bank’s position on rate policy and where to take it next. Normally, we look to this to see if there are subtle changes in a word or two that might indicate a shifting in the bank’s thinking, an adjustment in its stance.

In this announcement, the last paragraph has undergone a substantial re-write. It’s pretty dramatic evidence that we are at a turning point in rate policy.

Here’s how the bank concluded its Sept. 6 statement:

“With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, Governing Council decided to hold the policy interest rate at 5% and continue to normalize the Bank’s balance sheet. However, Governing Council remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed. Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior are consistent with achieving the 2% inflation target. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Here’s today’s re-write:

“With clearer signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. However, Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed. Governing Council wants to see downward momentum in core inflation, and continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

So, how should we read these changes?

First, the bank is much more confident that its high interest rates are achieving their purpose. Its concerns have pivoted away from fears that its policy isn’t working – i.e. that inflation pressures haven’t been broken – and toward a worry that progress is too slow. This viewpoint suggests that further hate hikes are unlikely.

That said, the bank keeps the door for more hikes open, with its warning that “inflationary risks have increased.” The path to the bank’s 2-per-cent inflation target looks higher for the next year, which does present upside risks, and the bank wants to make sure we know it won’t take its eye off that danger.

The bank now sees supply and demand more or less in balance, so it’s no longer talking about excess demand – a pretty big development, as that concern has been central to its campaign of rate hikes since March, 2022.

The rest of that concluding paragraph bears many similarities to the September statement. These are the criteria for eventual rate cuts. Crucially, the bank’s core measures from inflation must cool. So must inflation expectations and wage growth. Corporate pricing behaviour has been getting closer to normal, but it’s still not pre-pandemic normal. The bank has reiterated that its signposts for easing rates haven’t changed and haven’t arrived yet.

Taken together, this final paragraph signals that the bank’s holding pattern, now in pace for two rate decisions, could be in place for a while. Further hikes look unlikely, but cuts are still well in the distance. Nagging worries remain, but the biggest fears have receded.

– David Parkinson

11 a.m. ET

Economists react to today’s Bank of Canada decision

Here is how economists on Bay Street reacted to the Bank of Canada’s rate decision on Wednesday.

Andrew DiCapua, senior economist at the Canadian Chamber of Commerce: “The Bank of Canada stated quite clearly that monetary policy is slowing the Canadian economy with interest rates at the highest level in more than two decades. Our latest analysis of Canadian business conditions shows that firms see inflation and costs as their top challenges. That means this ‘higher for longer’ approach on interest rates will likely delay investment decisions and pause new hiring. These are the factors that are making it start to feel like a recession for many businesses and households.”

James Orlando, director and senior economist at Toronto-Dominion Bank: “The BoC didn’t throw any curveballs today. It acknowledged the growing evidence that economic momentum is slowing – falling retail sales, declining job vacancies and a cooling housing market to name a few. All of this showed up in its updated forecast, where the BoC expects below-trend growth over the next 12 months.”

Doug Porter, chief economist at Bank of Montreal: “We have long believed that 5 per cent rates are plenty high enough to eventually quell underlying inflation, but it will take time and patience. Strong wage growth and firm core inflation trends are going to test the bank’s patience. However, all signs suggest that the economy is struggling mightily to grow — despite the artificial sweetener of a surging population — with Q3 GDP about flat, housing halting, consumer confidence crumbling and the Business Outlook Survey pointing south.”

Matt Lundy

10:50 a.m. ET

What the BoC announcement means for Canada’s housing market

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New homes are built in a housing construction development in the west end of Ottawa on Thursday, May 6, 2021.Sean Kilpatrick/The Canadian Press

Don’t expect homebuyers to rush back into the market after the Bank of Canada kept its benchmark interest rate at 5 per cent.

Although this is the second time in two months the central bank has kept its key interest rate steady, there will continue to be uncertainty about the future of borrowing costs.

In announcing its decision, the central bank said inflationary risks have increased. And the bank repeated that it was “prepared to raise the policy rate further if needed.”

The prospect of another rate hike, along with today’s relatively expensive mortgages, has kept prospective homebuyers on the sideline, where they’ve largely been since the summer when the bank surprised the market with back-to-back interest rate hikes.

Since then, home sales have waned. WIth more homeowners now putting their properties up for sale, buyers have more choice and values are starting to decline in some regions like Toronto and the interior of B.C.

The senior economist with the Canadian Real Estate Association said robust market activity could resume next spring but only under certain conditions.

Shaun Cathcart said buyer activity would return if the central bank keeps interest rates steady and buyers start speculating that the central bank will cut interest rates. “Then we could see a lot of that pent up demand show up,” he said.

His association recently downgraded its sales and price forecast for the year. It cited ‘borrowing cost uncertainty’ as one of the reasons behind the downgrade.

Today’s decision does give borrowers with a floating rate or variable-rate mortgage a bit of a reprieve. These types of mortgages typically move in tandem with the central bank’s overnight lending rate.

So far, many of these borrowers have not had to face higher payments because Canadian bank products allow their amortizations to extend well beyond 30 years. The borrower will have to eventually make higher payments when their mortgage term ends and they are required to go back to their original amortization period.

Rachelle Younglai

10:40 a.m. ET

Markets react to the latest BoC interest rate decision

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The Bank of Canada wording on a Canadian $50 bill is pictured in Ottawa on Wednesday, Jan. 11, 2023.Sean Kilpatrick/The Canadian Press

Bond markets were not fully prepared for the Bank of Canada to leave rates unchanged as yields dropped immediately on the news. The two-year bond yield was at 4.77 per cent at 9:30 a.m. and it made a drop after the announcement to 4.70 per cent. The yield is now 4.72 per cent.

As for the five-year, it was 4.25 per cent early in the trading session and it dropped to 4.20 per cent right after 10:00 a.m. It is now in the 4.23-per-cent range.

BoC market reaction: Loonie and bond yields drop as traders price in higher odds of rate cut next year

The Canadian dollar immediately weakened by about two-tenths of a U.S. cent, to 72.42 cents US, a seven-month low.

Scott Barlow

10:30 a.m. ET

Rob Carrick: Bank of Canada’s interest rate hold is ‘diluted good news’

It’s diluted good news to say the Bank of Canada did nothing on Wednesday.

We can spin this as a win for borrowers in that the central bank didn’t crank its overnight rate higher and create a trickle-down rate hike for people with variable-rate mortgages, lines of credit and floating rate loans. But the status quo on rates is getting to be unmanageable for the most vulnerable borrowers. They need rate relief, not rate stability.

A year ago, there was a feeling among economists that rates would be in decline by late 2023. Looking ahead, it’s reasonable to expect lower rates 12 months from now. If you’re a struggling borrower, you need a 12-month plan to bridge you to the rate declines ahead.

Looking past high interest rates at the next big risk to your personal finances

If your mortgage is crushing you, talk to your lender. The federal government announced guidelines for banks on helping home owners struggling to pay their mortgages. Fees, charges and penalties may apply to some mortgage relief measures. The government, however, is asking that the costs not be applied and for banks to refrain from reporting late or delinquent payments to a credit bureau once a mortgage remedy has been found.

Non-profit credit counsellors are a resource for people whose debts are getting the better of them. Signs you’re sinking under the weight of your debt include a growing unpaid balance on your credit card and an inflating balance on your line of credit.

It’s vital to have some savings for emergencies, but households struggling with debt should feel no regret about pausing their saving for retirement and even their children’s post-secondary education. Car payments are massive these days – might selling one of two household vehicles help your monthly cash flow?

All you need to know about the future course of interest rates can be found in the inflation rate, which most recently was 3.8 per cent. Consistent month-by-month declines, even small ones, offer encouragement that rates will fall sooner rather than later. When we get below the 3 per cent mark for at least two straight months, the end of peak interest rates will be in sight.

Rob Carrick

10 a.m. ET

Bank of Canada holds key interest rate steady

The Bank of Canada held interest rates steady on Wednesday while downgrading its forecast for economic growth and warning that inflationary risks have increased.

The widely anticipated decision keeps the policy rate at 5 per cent. The bank said it was prepared to raise interest rates again if inflation remains stubbornly high.

After 10 interest rate increases over the past year and a half, higher borrowing costs are weighing on consumer spending and business investment, while pushing up unemployment. This slowdown means supply and demand in the Canadian economy are “now approaching balance,” the central bank said – a prerequisite for stabilizing prices.

At the same time, the bank upgraded its near-term forecast for inflation and warned that geopolitical uncertainty, notably the conflict in Israel and Gaza, could push up global oil prices and feed through into broader inflation. The bank is estimating global oil prices will be around $10 higher over the next two years than it forecast in July.

The bank now expects the annual rate of inflation to average around 3.5 per cent for the next year, higher than its last estimate in July, before falling back to the bank’s 2-per-cent target around the middle of 2025. Consumer Price Index inflation was 3.8 per cent in September, down from a peak of 8.1 per cent last summer.

Read the full story on today’s BoC rate announcement.

– Mark Rendell

9:30 a.m. ET

Rise in bond yields already tightening financial conditions

The Bank of Canada’s rate decision is happening against the backdrop of a sharp rise in global bond yields, which has pushed up borrowing costs for households, businesses and governments in recent months.

Central banks only have direct control over very short-term interest rates. Longer-term rates are determined in bond markets, based on investor beliefs about future central bank decisions and the dynamics of bond supply and demand, among other things.

Since the summer, yields on longer-dated bonds have spiked as markets adjust to the idea that central banks will likely need to keep interest rates high for a longer period of time to combat inflation. The yield on 10-year Government of Canada bonds have risen from a low of around 2.7 per cent earlier this year to slightly above 4 per cent today. The picture is even more dramatic in the United States, where yields on 10-year Treasuries briefly shot past 5 per cent this week for the first time since 2007.

These moves could have a profound impact on the Canadian economy. Government bonds provide a reference point for all other borrowing costs. When benchmark yields rise, homeowners face bigger mortgage payment shocks and governments are forced to put more tax dollars toward interest payments.

Bank of Canada Governor Tiff Macklem told reporters two weeks ago that higher bond yields are tightening financial conditions, which could influence monetary policy decisions. But that doesn’t necessarily preclude further interest rate hikes from the Bank of Canada.

“To the extent that higher long-term rates reflect expectations of future monetary policy, they’re not a substitute for doing what needs to be done to get inflation to come back to our target,” Mr. Macklem said.

Further reading about the rise in bond yields:

– Mark Rendell

9 a.m. ET

Macklem warned Canadian premiers against undercutting confidence in BoC independence

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Bank of Canada Governor Tiff Macklem holds a press conference in Ottawa on Wednesday, July 12, 2023.Sean Kilpatrick/The Canadian Press

Bank of Canada Governor Tiff Macklem warned three provincial premiers last month that their exhortations to stop raising interest rates could undermine public confidence in the independence of the central bank.

Ahead of the most recent rate decision on Sept. 6, the premiers of Ontario, British Columbia and Newfoundland and Labrador sent public letters to Mr. Macklem urging him to stop tightening monetary policy. The bank held interest rates steady last month, although most analysts were expecting this before the premiers got involved.

Mr. Ford issued this second call despite receiving a letter from Mr. Macklem on Sept. 13, in which the central bank governor expressed concern about interventions from premiers, which he said could create a perception of political interference with the bank. The contents of Mr. Macklem’s letter were first reported by The Canadian Press on Tuesday.

The central bank sets interest rates and makes other monetary policy decisions independently from the government. This allows it to make politically unpopular decisions that are sometimes needed to keep inflation under control.

“While I am very pleased to get your perspectives on the impact of our policy decisions, instructions or requests from elected officials about how we should set interest rates could create the impression that the Bank of Canada’s operational independence is at risk,” Mr. Macklem wrote in identical letters sent to Mr. Ford, B.C. Premier David Eby and Newfoundland Premier Andrew Furey.

“I am sure you agree that this would be unfortunate,” Mr. Macklem wrote. “Operational independence is critical to the legitimacy of the central bank, and to the effectiveness of monetary policy as a means to achieve price stability.”

Over the past two years, politicians from across the political spectrum have criticized Mr. Macklem and his team, first for failing to foresee and prevent the rise of inflation, then for rapidly increasing Canadian interest rates to get prices back under control.

– Mark Rendell

8:30 a.m. ET

Market expectations ahead of the Bank of Canada decision

Markets are widely expecting the central bank to hold steady on borrowing costs after last week’s September inflation report came in below market forecasts.

“Today’s Bank of Canada rate meeting is expected to deliver an unchanged decision, keeping rates steady at 5 per cent while keeping the options open for further rate hikes,” Michael Hewson, chief market analyst with CMC Market’s U.K., said, noting the most recent Canadian payrolls report showed jobs growth remained strong last month while wage growth edged higher.

“All told Bank of Canada [Governor] Tiff Macklem is unlikely to want to deliver any sort of message that could be considered dovish against that sort of backdrop,” Mr. Hewson said.

The European Central Bank follows on Thursday with its latest monetary policy announcement. That central bank is also expected to keep rates unchanged.

Terry Weber

8:05 a.m. ET

Analysis: What to look for during today’s BoC rate announcement

The least-newsy piece of news out of the Bank of Canada’s rate announcement will likely be the decision itself.

It’s a near certainty that the central bank will hold its policy rate steady at 5 per cent, just as it did in its previous decision in early September. The weakening inflation pressures in last week’s Consumer Price Index report pretty much sealed that deal.

We may, in that case, find ourselves in a phase that looks a lot more familiar for anyone who closely followed the bank prior to about 20 months ago. In typical times, no-change rate decisions are the norm, and, thus, hardly news in themselves. The juicy stuff is in the details of what the bank says about its decision – in the short statement that accompanies the decision and, four times a year, in the quarterly Monetary Policy Report that the bank releases in conjunction with the rate announcement. This is where we will find the key clues as to where, and when, interest rates are headed next.

Today is one of those MPR days, and that document, which normally runs around 30 pages or so, will draw most of my interest.

Critically, the MPR contains an update of the central bank’s economic projections, which are due for some interesting revisions. On the one hand, the economy is weaker than the bank predicted in July. On the other hand, inflation is higher.

Private-sector forecasters, on average, estimate that gross domestic product grew at a thin 0.5-per-cent annualized rate in the third quarter (which ended Sept. 30), far weaker than the bank’s projection in the July MPR of 1.5 per cent. The bank’s July forecasts of GDP growth for 2023 (1.8 per cent) and 2024 (1.2 per cent) also look unrealistically rosy, next to the current private-sector consensus forecasts of 1.2 per cent and 0.7 per cent, respectively.

But the more important numbers – the Bank of Canada’s outlook for inflation – are harder to call.

Certainly, the July outlook underestimated how strong price pressures would be at this stage: The economy exited the third quarter with a year-over-year inflation rate of 3.8 per cent, well above the 3.3 per cent pace that the bank had predicted for the quarter. That raises questions about whether the bank’s year-end projection of 2.5 per cent is still in range.

The bigger issue, though, is what effect this combination of a higher-than-expected inflation rate, but a slower-than-predicted economy, will have on expectations for when inflation will ultimately return to the bank’s 2-per-cent target. In July, the bank’s projection was mid-2025. Any change in that forecast will be pivotal to the timing of rate cuts, which look likely to begin sometime next year.

David Parkinson

7:30 a.m. ET

Bank of Canada expected to announce a ‘hawkish hold’

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The Bank of Canada will release its latest interest rate decision and monetary policy report on Wednesday morning. The Bank of Canada building is shown in Ottawa, Wednesday, Sept. 6, 2023.Adrian Wyld/The Canadian Press

The Bank of Canada is widely expected to deliver a “hawkish hold” this morning, keeping the policy interest rate at 5 per cent while cautioning that it could hike again if inflation remains stubborn.

The bank will release its rate decision at 10 a.m. ET along with a new quarterly forecast for inflation and economic growth. Governor Tiff Macklem will hold a news conference at 11 a.m.

After raising interest rates 10 times since March, 2022, Canadian borrowing costs are the highest they’ve been in decades. That’s weighing on economic activity and slowing inflation, leading most analysts to bet the bank has finished its historic rate hike campaign.

Few economists, however, expect the bank to declare mission accomplished. The annual inflation rate was running at 3.8 per cent in September, down from 8.1 per cent last summer but still nearly twice the Bank of Canada’s target. Concerns about another uptick in inflation – as happened over the summer months – likely means Mr. Macklem will maintain a hawkish tone and keep additional rate hikes on the table.

With economists and bond traders expecting a stand-pat decision, the bigger question marks are around the bank’s quarterly Monetary Policy Report forecasts. Economic growth has been weaker than expected in the July MPR; GDP contracted slightly in the second quarter and appears to have flatlined over the summer. At the same time, inflation has been stronger than forecast.

One key question is whether the bank will change its timeline for getting inflation back to 2 per cent. In the July MPR, the bank said it expected inflation to hover around 3 per cent for the next year, before declining to 2 per cent by the middle of 2025.

Read more about today’s Bank of Canada announcement.

Mark Rendell

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