Editor’s note: Prepared versions of the Bank of Canada decision were briefly published on the live blog earlier today. The story has been updated with the accurate information.
The latest on the Bank of Canada's rate decision
The Bank of Canada has held its benchmark interest rate steady at 5 per cent Wednesday but left the door open to more rate hikes if inflation ticks up.
The widely anticipated decision to hit pause on monetary policy tightening comes in response to signs that “the Canadian economy has entered a period of weaker growth,” the central bank said.
Find updates from our reporters and columnists below.
- Bank of Canada Governor Tiff Macklem will deliver an Economic Progress Report on Thursday outlining the bank’s rationale for today’s decision. The speech to the Calgary Chamber of Commerce starts at 2:10 p.m. ET, followed by a news conference at 3:30 p.m. ET. These will be Mr. Macklem’s first public comments since the July rate decision.
- The Bank of Canada’s next interest rate decision is on Oct. 25. It will also publish its quarterly Monetary Policy Report then, with updated forecasts for inflation and economic growth.
- Statistics Canada will release August Labour Force Survey data on Friday, showing the latest on job creation, unemployment and wage growth. Consumer Price Index data for August will be released on Sept. 19, while gross domestic product data for July will be released on Sept. 29. A preliminary estimate, published last week, suggested GDP will remain unchanged in July.
- The U.S. Federal Reserve’s next rate announcement is on Sept. 20. Financial markets expect the U.S. central bank to keep the Federal Funds rate between 5.25 and 5.5 per cent, although Chair Jerome Powell has said he is open to raising rates again if needed.
Freeland praises BoC pause, stretching norms of central bank independence
Finance Minister Chrystia Freeland praised the Bank of Canada’s decision to hold interest rates steady Wednesday, an unusual move given the norms of central bank independence.
In a statement, published shortly after the rate announcement, Ms. Freeland said the decision was a “welcome relief for Canadians.”
“As the Bank continues this work, my number one priority is to use all the tools at my disposal, and to work with partners at other levels of government across Canada, to ensure that interest rates can come down as soon as possible,” she said.
Federal ministers usually refrain from commenting so directly on monetary policy to avoid being seen as unduly influencing the Bank of Canada’s decision-making. The principle of central bank independence, a cornerstone of Canada’s economic and financial system, holds that governments should set the bank’s mandate and inflation target every five years but avoid interfering in day-to-day monetary policy decisions.
Ms. Freeland said she “fully respect[s] the independence of the Bank of Canada as it delivers on its mandate to return inflation to target.”
She is not alone in commenting on monetary policy. Over the past week, several provincial premiers, including Ontario’s Doug Ford and British Columbia’s David Eby, sent letters to the Bank of Canada urging it to stop raising interest rates.
Federal opposition politicians have long criticized the central bank. Conservative Party Leader Pierre Polievre has vowed to fire Bank of Canada Governor Tiff Macklem, while NDP Leader Jagmeet Singh has said the central bank’s policies are wrong-headed and has urged it to stop hiking rates.
Inflation, high interest rates affecting Canadians’ mental health, report finds
Financial struggles brought on by inflation and higher interest rates are damaging the mental health of many Canadians, with some reporting high rates of anxiety over housing and food, according to a poll released Wednesday by Mental Health Research Canada, a charitable organization.
The poll found that 39 per cent of Canadians said the economy was impacting their mental health. Nearly a quarter of respondents – 24 per cent – said they have gone into debt as a result of inflation. Meanwhile, 23 per cent of Canadians said they are concerned about their ability to make rent or mortgage payments, while 37 per cent are struggling to adequately feed themselves or their families.
“We have seen a continual trend line in terms of inflationary pressures, or economic pressures, and it’s getting worse,” said Michael Cooper, vice-president of development and strategic partnerships at MHRC.
Read more about the results of the MHRC poll.
Editor’s note: A previous version of this article included some information from the previous poll conducted by Mental Health Research Canada, which was released in May 2023. The new poll, released Sept. 6, 2023, did not ask about the impact of inflation on Canadians' mental health, but did ask about the impact of economic issues, which is reflected in this revised version. Among respondents who reported thoughts of suicide in the past year, 24 per cent indicated they were unemployed in the new poll, versus 28 per cent, as reported in the May 2023 poll and previous version of this article, respectively; and 41 per cent indicated they were experiencing financial troubles in the new poll, versus 27 per cent in the previous poll. The accompanying chart has been updated as well to reflect the more recent poll results, which differ in all cases by only one or two percentage points.
Opinion: A playbook for debt and investing as we look ahead to a U-turn for interest rates
You have to be a gazelle to manage your finances these days.
So much pivoting in midstride as the outlook for inflation, the economy and interest rates shifts.
With the economy stalled, the bank left rates alone. A country now wonders: When will rates start falling, and how fast?
Inflation will be your guide to the trajectory for rates. But more gazelle-like pivoting may be needed before we see consistent rate cuts. For now, it looks like we are looking down from the heights of Mount Interest Rate.
Here are some things to do with your finances to prepare for the coming descent:
- Snap up high-rate GICs
- Take a step back if you’re thinking of locking in a variable-rate mortgage
- Consider high-yielding dividend stocks in rate-sensitive sectors
- Consider bond funds
Read the full column on preparing your finances.
David Parkinson: Key takeaways from Wednesday’s rate decision
The Bank of Canada is on hold. But it’s not convinced.
That’s the key takeaway from Wednesday morning’s interest-rate announcement. Yes, the bank has gone from raising rates to holding steady. But the text of the announcement contains what may be the least forceful argument for a policy shift that you’re ever going to see.
The message is that while consumption has slowed and excess demand has eased, inflation – the primary target of interest-rate policy – is still too high and sticky for comfort. For that reason, the bank has very much characterized this stand-pat rate decision as a pause rather than the finish line for rate hikes.
Frankly, if you didn’t read the first and last paragraphs of the announcement, in which the bank states and then restates its decision to hold steady, you would have a hard time telling which direction the bank is leaning. The text could just as easily accompany a hike as a hold. Reading it, I wonder if it was a closer call for the Governing Council than the financial markets had anticipated.
What I see here is a central bank buying itself time. The rapid slowdown in demand has caught the bank by surprise, and the stubbornness of core inflation is out of step with this development. It looks like the bank is willing to take a break to see if the inflation trend will start to turn that same corner.
This rate-decision statement certainly leaves an appetite for more information. I’ll be very interested to hear what Bank of Canada Governor Tiff Macklem has to say in his post-decision speech and news conference in Calgary on Thursday.
What the BoC decision means for Canada’s housing market
Borrowers will get some relief after the Bank of Canada held its key interest rate at 5 per cent Wednesday.
But the central bank gave no clear sign that this pause would last, saying it remained concerned about inflation and was “prepared to increase the policy interest rate further if needed.”
Since the bank raised interest rates in June and July, borrowers with variable-rate mortgages have had to pay more interest to service their loans.
In some cases, borrowers are seeing their mortgage balance grow, or negatively amortize, because their monthly payments are not covering the interest owing. So that unpaid interest is added to their loan balance.
Today’s decision means variable-rate borrowers will have a bit more time to adjust to the summer’s higher interest rates.
Realtors and mortgage brokers have said would-be buyers are hesitant to make a big purchase because they don’t know if borrowing costs will continue to increase.
“One of the precursors to stronger market activity will be more certainty on whether the Bank of Canada is finished with rate hikes,” said Jason Mercer, chief market analyst with the Toronto Regional Real Estate Board, the country’s largest real estate market.
That’s what happened after the central bank said in January that it would take a break from raising interest rates. Over a four-month period, from February to May, prospective buyers rushed back into the market. Home sales soared, and prices increased across most of the country.
But activity has slowed since June, according to the most recent sales reports. Home prices have also started to decline in the Toronto region.
The Canadian dollar after today’s BoC decision
The Canadian dollar was very much unfazed by the Bank of Canada announcement Wednesday. The value went from $0.7338 to $0.7312 at 10 a.m., a mere $0.0026, on the news. Crude prices, the other major driver of the loonie along with bond yields, barely changed for the day, up just 6 U.S. cents, which also helps explain the sleepy trading in the Canadian dollar.
Economists react to today’s BoC rate announcement
Here is how analysts on Bay Street reacted to Wednesday’s rate pause:
Royce Mendes, head of macro strategy at Desjardins Securities: “It’s no surprise that policymakers are hesitant to declare an end to the era of rate hikes. A premature signal that rates have reached their peak would cause an unwanted easing in financial conditions. That said, the recent string of weak data reinforce our call that the Bank of Canada will not be raising rates any further this cycle.”
Avery Shenfeld, chief economist at CIBC Capital Markets: “Forecasts are uncertain, but economists know what’s already happened, so the softness of recent growth and labour market data made it an easy call for the Bank of Canada to leave rates unchanged today.”
Stephen Brown, deputy chief North America economist at Capital Economics: “With recession risks rising and labour market conditions loosening, we continue to think that the Bank’s next move will be a rate cut, in early 2024. … With demand quickly shifting from excessive to deficient, and given our expectation that two CPI releases before the Bank’s next meeting will show an easing of core inflation pressures, there will be little need for the Bank to hike any further.”
How the bond markets are reacting to today’s BoC decision
The Bank of Canada held rates steady, as everyone expected, so there is little to report from bond markets. The two-year bond is trading in a two-basis-point range, between 4.66 per cent and 4.68 per cent, after opening near 4.63 per cent. As for the five-year, the benchmark rate for new mortgages, the action is similar. It opened at 3.93 per cent and is now trading between 3.96 and 3.98 per cent.
Rob Carrick: ‘If we’re not at the peak for rates right now, we are close’
A word of caution about banking on interest rates finally peaking. Yes, the Bank of Canada passed on an opportunity to raise its benchmark interest rate Wednesday. But we’ve seen this before, early this year, a pause then a one-two punch of rate hikes in June and July.
The central bank says it’s prepared to raise rates again if needed to control inflation, but there’s a big difference between now and the previous rate pause. The economy shrank in recent months, which means a heightened risk of recession.
If we’re not at the peak for rates right now, we are close. Wait, maybe peak is the wrong term. Think more of a plateau for rates where the central bank’s trendsetting overnight rate holds steady for many months while inflation is monitored.
Borrowers with floating-rate debt such as variable-rate mortgages and lines of credit will get some relief when the Bank of Canada starts to unwind the rate hikes that have accumulated since March, 2022. Maybe as soon as early 2024, if inflation co-operates. Fixed-rate mortgages take their cue from what’s happening in the bond market, which has yet to be convinced that inflation is in retreat. If you’re hoping for lower rates on fixed mortgages, stand by.
The amazingness of 2023 for savers continues for the moment. Rates on guaranteed investment certificates are firmly above 5 per cent from a wide variety of issuers, but that could change in a matter of weeks. When the Bank of Canada paused its rate hikes earlier in the year, 5-per-cent GIC rates all but disappeared. The best deal in GICs right now may well be the 18-month 6-per-cent GIC that Tangerine had on offer as recently as Wednesday morning.
Investors have been capturing high rates by pouring money into savings accounts packaged like exchange-traded funds and mutual funds. These products currently pay 4.5 to 5.3 per cent and are influenced by the Bank of Canada’s overnight rate. They remain a very attractive way for investors to park cash productively, even after inflation is factored in.
Statistics Canada will report the August inflation rate on Sept. 19. The July rate was 3.3 per cent on a year-over-year basis. A decline from that level suggests better times ahead for borrowers and the beginning of the end for a golden period in saving. Higher means we may not be done with rate increases.
Bank of Canada holds interest rate steady
The Bank of Canada has hit pause on its rate-hike campaign, holding its benchmark interest rate steady at 5 per cent in response to growing evidence that the Canadian economy has begun to stall.
At the same time, the central bank said it remains worried about stubborn inflation and has left the door open to future rate hikes if consumer prices tick up again.
The widely anticipated decision offers some respite to homeowners and other borrowers, who have been hammered by rising interest rates over the past 18 months, including hikes in June and July. The bank has raised interest rates 10 times since March, 2022, the most aggressive monetary policy tightening campaign in decades, in a bid to get runaway prices under control.
Annual Consumer Price Index inflation remains above the central bank’s 2-per-cent target, clocking in at 3.3 per cent in July. But weak economic data over the past month has given the bank confidence to move back to the sidelines and wait for high borrowing costs and slower economic activity to pull down inflation.
“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 per cent and continue to normalize the bank’s balance sheet,” the bank said in its rate announcement.
“However, Governing Council remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed,” it said.
Read the full story on today’s BoC rate announcement.
Analysis: What to look for during today’s Bank of Canada announcement
The markets, and most economists, are convinced that the Bank of Canada will hold its key interest rate steady in Wednesday morning’s policy announcement. But frankly, it wouldn’t be hard for the central bank to justify one more increase.
That looked like a distinct possibility just a few weeks ago, as pivotal economic data guiding this rate decision rolled in.
The July inflation numbers were uncomfortably hot. Headline inflation rose to 3.3 per cent, while the Bank of Canada’s favoured core measures remained stuck around 3.7 per cent. The July employment report showed that the labour market continued to moderate, but average hourly wage growth clocked in at a problematic 5 per cent year-over-year – and rising.
Until now, the bank has consistently erred on the side of raising rates if the data left doubts about whether inflationary pressures were easing. Those numbers most certainly leave doubts. The bank could justify one more rate hike on the inflation indicators alone.
Or so it seemed – before last week’s gross domestic product report showed that the economy shrank in the second quarter. That rewrote the narrative. Over a few weeks, we’ve gone from “the economy may still be too hot and inflationary” to “the economy may already be in a recession.”
It’s pretty hard for any central bank to justify raising interest rates in a recession. Odds are this central bank won’t try that uncomfortable suit on for size.
But if it does, indeed, put rate hikes on hold, I’ll be interested to see how it talks its way around the lack of apparent progress on its critical inflation indicators. I expect it will lean heavily on signs of slowing demand – in the GDP report as well as in weak retail sales, slumping international trade and eroding consumer confidence – to argue that the gap between supply and demand, one of its biggest and most persistent worries, is rapidly closing.
Regardless, the bank won’t have a lot of words to explain its decision, at least not immediately. This is one of the four rate decisions each year that land between quarterly Monetary Policy Reports, which means the only information we’ll get from the bank on Wednesday is five or six paragraphs constituting the announcement itself.
Given the stubborn inflation data, I expect the bank to leave the door open to raise rates further if the data doesn’t behave itself over the fall. The bank’s choice of words around its future policy direction – typically contained in the final paragraph of the announcement – will be essential reading and re-reading.
We can expect to get a more detailed discussion on Thursday when Governor Tiff Macklem delivers the bank’s customary post-announcement “economic progress” speech in Calgary, scheduled to begin at 2:10 p.m. ET. If we’re still looking for answers, the Bank of Canada press gallery will see what it can get out of Mr. Macklem in a post-speech news conference 3:30 p.m. ET.
Market expectations ahead of today’s Bank of Canada decision
Markets are widely expecting the central bank to hold rates steady.
“Last week’s surprise contraction in Q2 GDP cemented our call for a pause this week, and that the hiking cycle is done,” said Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO Capital Markets.
“While inflation remains well above target, and likely accelerated further in August, the weaker growth backdrop should provide policymakers with sufficient confidence that inflation will return to the 2-per-cent target over time.”
Mr. Reitzes said BMO expects the central bank to remain on hold until 2024, although today’s policy statement isn’t likely to show any sign of softening on inflation.
“Instead, look for the door to rate hikes to be left open, warning markets and Canadians that they’re ready, willing and able to act if signs emerge that growth is rebounding and inflation isn’t heading lower,” he said.
Bank of Canada expected to hold rate steady as economy slows
After two consecutive rate hikes over the summer, the Bank of Canada is widely expected to hold its benchmark interest rate steady at 5 per cent Wednesday amid signs the Canadian economy has begun to stall.
That may well mark the end of the central bank’s 18-month-long campaign to raise rates, with most Bay Street analysts betting that Canadian interest rates have peaked. Still, economists expect the central bank to leave the door open to future hikes in the event inflation ticks up again.
The one-page rate announcement will be published today at 10 a.m. ET. Governor Tiff Macklem will explain the decision in a speech and news conference in Calgary on Thursday.
Interest rate swap markets, which capture market expectations about interest rates, are putting the odds of another hike on Wednesday at around 15 per cent, according to Refinitiv data.
Inflation remains above the central bank’s 2-per-cent target, ticking up from 2.8 per cent in June to 3.3 per cent in July. At the same time, recent economic data is showing clear signs of weakness, suggesting higher borrowing costs may be weighing on economic activity more than previously appreciated.
Gross domestic product data published by Statistics Canada on Friday showed the Canadian economy contracted at an annualized rate of 0.2 per cent in the second quarter. The Bank of Canada was expecting 1.5-per-cent annualized growth. Meanwhile, the unemployment rate has moved up half a percentage point in the past three months to 5.5 per cent, suggesting the labour market is starting to cool.
Analysts, investors and homeowners will be watching for hints about what the bank plans to do next.
“Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation,” the central bank said in its July rate announcement. “In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the 2-per-cent inflation target.”
Keep your eye on changes to this language.
Read more about today’s Bank of Canada announcement.