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The latest on the Bank of Canada's rate decision

The Bank of Canada increased its benchmark interest rate by a quarter of a percentage point, but said that it expects to hold off further rate hikes, making it the first major central bank to say it would pause monetary policy tightening.

This is the eighth consecutive rate increase, and brings the bank’s policy rate to 4.5 per cent.

The bank said it expects the Canadian economy to “stall” in the first half of the year, but does not foresee a significant recession. Inflation is expected to fall to about 3 per cent by the middle of this year.

1:45 p.m.

What’s next?

The Bank of Canada’s next rate decision is on March 8. The bank said today that it expects to keep interest rates at 4.5 per cent, so don’t expect much movement at the next rate decision. That said, it did leave the door open to more hikes “if necessary.”

The bank will publish a “summary of monetary policy deliberations” on Feb. 8 giving more detail about the thinking behind today’s decision. This is a new document, which the bank announced in the fall in an effort to improve transparency. It’s not expected to be as detailed as minutes from the U.S. Federal Reserve meetings, but it should provide additional insights into how the bank is thinking about the economy and the trajectory of inflation.

All eyes now turn to the Federal Reserve, which is expected to announce another quarter-point rate hike on Feb. 1. That would take the Federal Funds Rate to a range of 4.5 to 4.75 per cent.

– Mark Rendell

1 p.m.

After the Bank of Canada’s interest rate hike, what’s your trigger rate?

Homeowners with variable-rate mortgages could face an increase in their expected monthly payments after the Bank of Canada’s latest interest rate hike.

The quarter-of-a-percentage-point increase in the central bank’s trendsetting rate has some borrowers worried about a little-known feature of many variable-rate mortgages known as the “trigger rate.” It’s the interest rate level at which some lenders may require mortgage holders to increase their payment amount (whereas, before hitting the trigger rate, payments would remain the same, even if interest rates went up).

The question you likely have now is: How close is the trigger point?

If you have a variable mortgage rate with fixed payments, use this tool to estimate your own trigger rate.

– Erica Alini

12:45 p.m.

Opinion: The Bank of Canada did its job. Rising interest rates and inflation look to be ending

The Bank of Canada raised its policy rate to 4.5 per cent Wednesday. That’s the highest level for Canada’s foundational interest rate since 2007, and the climb from 0.25 per cent one year ago is the fastest rise in a generation.

These higher rates – along with the high inflation that prompted them – create significant burdens for many. It’s no surprise that conflicts between politicians, consumer groups, labour organizations and corporations are increasing as the economic pie is shrinking.

Luckily, there is good news on the horizon: Both rising interest rates and high inflation may soon be at an end, all without a recession.

Read the full opinion column on the Bank of Canada’s rate hike.

– Trevor Tombe

12:20 p.m.

Your personal inflation rate: Calculate how you compare to the Canadian average

What is your personal rate of inflation? It’s probably different than the rate that gets reported by Statistics Canada every month.

Generally speaking, when people refer to the inflation rate, they’re talking about the 12-month change in the Consumer Price Index. The CPI rose 6.3 per cent in December from a year earlier, slowing from the 6.8-per-cent pace in November.

Use this tool to input your spending and calculate how you compare to the Canadian average.

– Globe staff

12 p.m.

Compare how different interest rates affect the cost of your mortgage

As Canada’s prime rate increases, so too do mortgage rates. For homebuyers, this means potentially higher monthly payments and increased overall interest on their mortgage. When these changes will come into effect depends on the type of loan a borrower signed up for: fixed or variable.

Use this tool to see two interest rates look like monthly and long-term.

– Globe staff

11:52 a.m.

Macklem: How long will interest rates remain high?

Mr. Macklem, on how long interest rates will remain high: “That’s going to depend on the evolution of the economy, the evolution of inflation ... It’s too early to be talking about [rate] cuts.”

– David Parkinson

11:50 a.m.

BoC rate pause is ‘very conditional,’ Carolyn Rogers says

Senior deputy governor Carolyn Rogers went a bit further than calling the rate pause “conditional” – she called it “very conditional.”

But the shift in thinking, as she described it, is this: It took “an accumulation of data” to convince the bank to pause; from here, “it will take an accumulation of data in the other direction” to come off the pause and hike again.

– David Parkinson

11:45 a.m.

Bank of Canada’s decision to pause rate hikes is ‘conditional,’ Macklem says

Mr. Macklem emphasized a couple of times during the press conference that the Bank of Canada’s decision to take a pause on rate hikes is “a conditional pause.”

The message is that the bank wants to take a breather to reassess how its rate hikes to date are playing out in the economy, and how inflation is evolving – but it is prepared to resume rate increases if conditions don’t improve the way it expects.

– David Parkinson

11:40 a.m.

Canada could experience ‘a mild recession,’ Macklem says

Canada could experience “a mild recession,” Mr. Macklem said, although he added that the bank is not expecting a significant downturn.

The bank is forecasting near-zero GDP growth over the first half of 2023, as interest rates curb consumer spending and business investment.

“It’s just as likely that we’ll have two or three quarters of slightly negative growth as slightly positive growth. So yes, it could be a mild recession. It’s not a major contraction.”

“We do need this period though of essentially no growth to allow supply to catch up,” he added. “We do need to rebalance. Demand is running ahead of supply. We need to give supply a chance to catch up. That’s a big part of reducing the inflationary pressures and that’s a big part of restoring price stability. But I don’t want to pretend that it’s painless. It’s not painless.”

– Mark Rendell

11:33 a.m.

Macklem on labour markets and wage growth

Mr. Macklem on labour markets and the threat of a wage-price spiral in inflation: “Part of restoring balance in the economy is rebalancing the labour market,” he said. But the plateauing of the pace of wage growth “is giving us confidence” that “the risk of a wage-price spiral has come down.”

Still, he said, the current 4- to 5-per-cent annual wage growth, if that were to be sustained, is inconsistent with achieving the 2-per-cent inflation target. “That is something that we will be watching.”

– David Parkinson

11:30 a.m.

Macklem says the BoC’s financial losses are ‘temporary’

Mr. Macklem on the Bank of Canada’s financial losses: “Our losses are temporary,” he said. “We will have a couple of years of negative net income,” but then the bank’s interest income on its asset holdings “should return to a positive state.”

“None of this has any impact on monetary policy,” he added, noting that the bank doesn’t set monetary policy with its financial profits in mind.

– David Parkinson

11:27 a.m.

Macklem says it’s ‘too early’ to talk about rate cuts

Bank of Canada governor Tiff Macklem said that rate cuts aren’t yet on the cards. “It is really far too early to be talking about cuts,” Mr. Macklem said in the press conference. “The pause really is designed to give us time to assess whether we’ve raised interest rates enough to get inflation all the way back to target.”

– Mark Rendell

11:25 a.m.

Macklem on inflation

Mr. Macklem on the Bank of Canada’s 1- to 3-per-cent target band for inflation, and whether the bank would be satisfied getting the inflation rate at the upper end of that band: “The 1- to 3-per-cent band is not a zone of indifference,” he said. In order to consistently stay within the band, “you need to aim for the middle of the band.”

– David Parkinson

11:20 a.m.

Macklem on the potential of another rate hike

Mr. Macklem was asked what he would have to see to be convinced that another rate increase is necessary. He said there would be no one indicator, but rather “an accumulation of evidence” that the economy isn’t evolving as the bank has projected in its quarterly Monetary Policy Report.

Importantly, the bank wants to see inflation expectations easing, along with actual inflation numbers.

– David Parkinson

11:20 a.m.

Macklem says Canada is ‘turning the corner on inflation’; ready to hit pause on hikes

Bank of Canada Governor Tiff Macklem said that Canada is “turning the corner on inflation” and that the central bank is ready to hit pause on interest rate increases. At the same time, he said he’s prepared to tighten monetary policy further if needed.

“We have raised rates rapidly, and now it’s time to pause and assess whether monetary policy is sufficiently restrictive to bring inflation back to the 2-per-cent target,” Mr. Macklem said in a news conference.

The central bank increased its benchmark rate by a quarter of a percentage point on Wednesday, bringing the policy rate to 4.5 per cent. It said that it would likely hold interest rates at this level for some time.

“To be clear, this is a conditional pause – it is conditional on economic developments evolving broadly in line with our [Monetary Policy Report] outlook. If we need to do more to get inflation to the 2-per-cent target, we will,” Mr. Macklem said.

Interest rate increases work with a lag, making it hard for the bank to judge the impact of its policy changes in real time. “We are trying to balance the risk of under- and over-tightening. If we do too little, the decline in inflation will stall before we get back to target. But if we do too much, we will make the adjustment unnecessarily painful and undershoot the inflation target.”

Mr. Macklem said the upside and downside risks to its inflation forecast are “balanced.”

”But with inflation still well above our target, we continue to be more concerned about the upside risks. If these upside risks materialize, we are prepared to raise interest rates further.”

– Mark Rendell

11:15 a.m.

Real estate industry optimistic with BoC’s potential rate-hike pause – but economists say not so fast

The real estate industry believes activity may start to pick up after the country’s central bank said it could hold interest rates steady following today’s rate hike.

The industry thinks a pause in interest rate hikes could usher in a period of stability for homebuyers and sellers, who have seen mortgage rates more than double in a year and the typical home price drop 13 per cent across the country.

“I believe it would be a sign of confidence,” said Phil Soper, president of national real estate brokerage Royal LePage.

Today’s interest rate increase of 25 basis points to 4.5 per cent will immediately ratchet up mortgage costs for first-time homebuyers, mortgage holders who are up for renewal and those with a variable-rate mortgage, which moves in tandem with the Bank of Canada’s overnight lending rate. (A basis point is 1/100th of a percentage point.)

But Mr. Soper said there are a significant number of would-be homebuyers and sellers who have been waiting for a sign that this era of pricing volatility will end. He does not expect a “rush of activity” but said the dominant theme has been: “You don’t want to be someone getting into the market when home prices are falling.”

Tracy Valko, a mortgage broker who has worked in southern Ontario for 26 years, also believes the slowdown in interest rate hikes will encourage buyers and sellers back into the market. “The worst of it is over,” said Ms. Valko. She said her clients are slowly coming to terms with the higher interest rate environment and believes the significant drop in home prices in some parts of southern Ontario will offset the jump in borrowing costs.

But economists are not so sure. Another interest rate hike could mean “more of the same” for Canada’s real estate market.

Sherry Cooper, chief economist with Dominion Lending Centres, said she expects “a continued slowdown in sales and new listings as prices continue to fall. ”Even if the Bank of Canada holds its overnight rate at 4.5 per cent this year, the higher borrowing costs will likely continue to act as a dampener on the real estate market. Mortgages are more expensive than a year ago. And the lack of new listings last year prevented home prices from falling further.

That could change this year if homeowners have no choice but to sell for personal or financial reasons or if they believe the market has stabilized.

“We might see some increase in distressed sales, so therefore we might see additional downwards pressure on prices before things stabilize later in the year,” said Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce.

Read our explainer to understand how the Bank of Canada’s interest rate hike affect variable-rate mortgages.

– Rachelle Younglai

10:50 a.m.

Economists react to today’s Bank of Canada rate hike

Here is how analysts on Bay Street reacted to Wednesday’s rate hike.

Royce Mendes, head of macro strategy at Desjardins Securities: “The Bank of Canada is back to using forward guidance. The statement now says that the Governing Council expects to hold the policy rate at its current level while it assesses the impact of past rate hikes. That likely ensures a pause in the rate hiking cycle for at least the next few months. Our forecast for the economy in 2023 is more downbeat than the one included in the Monetary Policy Report. As a result, we expect that this will be the final rate hike of this cycle.”

Andrew Grantham, senior economist at CIBC Capital Markets: “The Bank pointed to stronger than expected growth at the end of 2022, a tight labour market and still elevated short-term inflation expectations as reasons for the policy move today. However, the statement also pointed to an easing in the 3-month rates of core inflation, and the expectation that overall inflation will come down ‘significantly’ this year due to the energy prices, improvements in supply chains and the lagged effects of higher interest rates.”

James Orlando, director and senior economist at Toronto-Dominion Bank: “With the belief that the economy is on the path to price stability, the BoC can now step to the sidelines and let its restrictive policy filter through the economy. Though it does have the option to hike again should inflation prove uncooperative, we are expecting it to hold rates at this level for most of 2023, before cutting at the end of the year to drive a better balance between interest rates being too far in restrictive territory and a weakening economy.”

– Matt Lundy

10:40 a.m.

Market report: How the quarter-point hike is affecting bonds

The domestic five-year bond drifted higher from 2.92 per cent to 2.95 per cent ahead of the bank announcement. The yield dropped significantly to 2.89 per cent after the expected 25-basis-point hike, reflecting signs in the statement that a pause in tightening was expected. (A basis point is 1/100th of a percentage point.)

The ten-year bond followed a similar pattern, dropping from 2.87 per cent to 2.8 per cent after the news.

– Scott Barlow

10:30 a.m.

Monetary Policy Report: Pace of wage growth ‘not consistent’ with 2-per-cent inflation

The Bank of Canada warned that although the pace of wage growth “appears to have plateaued” in the range of 4 to 5 per cent annually, it remains a threat to achieving a return to its 2-per-cent inflation target.

In its Monetary Policy Report, the bank didn’t mince words.

“Unless a surprisingly strong pick-up in productivity growth occurs, sustained 4 per cent to 5 per cent growth is not consistent with achieving the 2-per-cent inflation target.”

Think of a sustainable pace for wage growth as the rate of productivity growth plus the rate of inflation.

So, you would need productivity to grow by between 2 and 3 per cent annually to support this sort of wage growth while sustaining 2-per-cent inflation. Labour productivity grew 0.6 per cent in the third quarter compared to the second quarter (the latest figures available from Statistics Canada), but actually declined 0.3 per cent year over year.

The implication is that if wage growth doesn’t retreat, barring a surge in productivity, the bank’s quest for 2-per-cent inflation will run into a road block – and higher interest rates may be necessary for longer to achieve the target.

– David Parkinson

10:28 a.m.

Monetary Policy Report: Summary of the BoC’s latest economic projections

Here are the highlights of the Bank of Canada’s new economic projections, contained in its quarterly Monetary Policy Report released Wednesday. (The bank’s previous forecast, from October, follow in parentheses.)

Inflation (year over year):

  • 6.7 per cent in Q4 2022 (7.1 per cent);
  • 5.4 per cent in Q1 2023 (no previous forecast);
  • 2.6 per cent in Q4 2023 (2.8 per cent);
  • 3.6 per cent for full-year 2023 average (4.1 per cent).

Gross domestic product growth (percentage change, annualized rate):

  • 1.3 per cent in Q4 2022 (0.5 per cent);
  • 0.5 per cent in Q1 2023 (no previous forecast);
  • 1.0 per cent for full-year 2023 average (0.9 per cent).

– David Parkinson

10:20 a.m.

Analysis: Is this the end of the rate-hike cycle? Almost, but not quite

Has the Bank of Canada just declared the end of interest rate hikes? Almost. But not quite.

Yes, the big news in Wednesday’s rate announcement – in which the central bank raised its policy rate for the eighth straight time – was the bank’s declaration that it is henceforth in a holding pattern on further rate moves. In central banking parlance, this marks a change in its policy bias, to neutral from tightening.

Or maybe it’s more like neutral-light.

There’s enough uncertainty in the bank’s outlook, most importantly for inflation, that it built ample wiggle room into this shift. And it left open the possibility – if only relatively slim – that we haven’t seen the last of rate hikes.

Note the exact wording: “If economic developments evolve broadly in line with the [bank’s new quarterly forecasts], Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest-rate increases. Governing Council is prepared to increase the policy rate further if needed to return inflation to the 2-per-cent target.”

It’s meaningful that the bank has characterized this as a pause to rate hikes – a breather perhaps, to let the economy catch up to 425 basis points of rate increases over the past 10 months – while not outright declaring an end. (A basis point is 1/100th of a percentage point.) And it immediately followed with an assurance that suggests that if it were to waver from this holding stance, it is still leaning its thinking in the direction of another increase.

The quarterly Monetary Policy Report, released in conjunction with the rate announcement, spells out what the bank is most worried about in terms of derailing its economic outlook. Even though it trimmed its projections for inflation this year, it remains quite jittery that inflation in the services sector “could be stickier than projected.”

This side of the economy is more exposed to rising labour costs and more susceptible to elevated consumer inflation expectations. Those are now, clearly, the key wild cards in the Bank of Canada’s inflation outlook – and the critical factors to watch as 2023 unfolds.

– David Parkinson

10 a.m.

Bank of Canada announces quarter-point rate increase

The Bank of Canada increased its benchmark interest rate by a quarter of a percentage point, raising Canadian borrowing costs for the eighth consecutive time on Wednesday.

The widely-anticipated announcement brings the policy rate to 4.5 per cent.

Central bank officials have signalled that they’re nearing the end of the aggressive rate-hike cycle. But they opted for another rate increase on Wednesday after a string of economic data releases showed that the Canadian economy is proving resilient in the face of higher borrowing costs while inflation remains worryingly high.

– Mark Rendell

9 a.m.

Analysis: Wednesday’s announcement could mark ‘crucial turning point’ in rate cycle

Wednesday’s Bank of Canada rate announcement could mark a crucial turning point in the central bank’s aggressive interest-rate cycle. I don’t want to say the actual decision on the bank’s policy rate (another quarter percentage point increase, or not?) is inconsequential. But ultimately, it will matter less than the key details of how the bank frames the future for the economy and its policy trajectory.

The rate statement itself typically runs about six to eight paragraphs, but my eyes always immediately seek out the final paragraph. That’s where the bank signals where it expects to take interest rates from here, and the key elements that will determine future decisions. It requires careful reading: Even small changes in wording, compared with the bank’s previous rate statement in December, can have big meaning.

The key phrase in the last paragraph of the December statement was, “Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further.” That was a shift from the October rate announcement (“the Governing Council expects that the policy interest rate will need to rise further”), and signalled that the bank was getting close to the end of its rate hikes.

Another rewording on Wednesday could deliver the message that rates have entered a holding pattern. However, if the bank stands pat on that phrasing, it would imply that it’s not convinced that the rate hikes to date have slowed the economy and inflation sufficiently – and that it’s keeping its options open for at least one more rate increase.

Regardless of the choice of words, we’ll want to consider them in tandem with the bank’s new economic forecasts, which will be detailed in the quarterly Monetary Policy Report, to be published at the same time as the rate decision.

The previous forecasts, in late October, overestimated fourth-quarter inflation, but they also may have overestimated fourth-quarter economic growth. There’s a chance that the fresh outlook could paint an increased risk of a mild recession. At the same time, there may be scope for the bank to chart a somewhat lower path for inflation. If it does so, that would open the door for a halt to further rate increases.

– David Parkinson

8:30 a.m.

Why is everyone talking about the Bank of Canada?

Mortgage rates are rising, home prices are falling, and talk of recession is in the air. Behind it all is the Bank of Canada and its aggressive campaign to wrestle inflation back to earth.

Over the past two years, Canada has experienced the first major inflation surge since the early 1980s. This has eroded the purchasing power of the dollar, and presented a crisis for the Bank of Canada, whose raison d’être is stabilizing the value of money.

The central bank responded last year by tightening monetary policy at the fastest pace in a generation, raising interest rates seven consecutive times. This hammered the housing market and is expected to cause the Canadian economy to stall through the first half of 2023.

At the same time, monetary policy has become a hot political topic. Conservative Leader Pierre Poilievre has said he would fire Bank of Canada Governor Tiff Macklem, while NDP Leader Jagmeet Singh has criticized the bank for continuing to raise rates.

So why is the central bank raising interest rates? What’s happening with inflation? And what control does the government have? Read our Bank of Canada explainer.

– Mark Rendell

8 a.m.

Bank of Canada expected to deliver final quarter-point rate hike

The Bank of Canada is expected to increase its benchmark interest rate by another 25 basis points today, although for the first time in nearly a year, a rate hike is not guaranteed. (A basis point is 1/100th of a percentage point.)

The central bank will announce its decision at 10 a.m. ET, followed by a press conference by Governor Tiff Macklem at 11 a.m. ET.

The bank raised interest rates seven consecutive times last year, lifting the policy rate to 4.25 per cent from 0.25 per cent in an effort to get inflation under control. Bank officials signalled in December that they are nearing the end of the rate-hike cycle. The key question for today is whether they’re ready to hit pause.

Most Bay Street analysts are expecting a final quarter-point move, which would take the policy rate to 4.5 per cent. However, the bank is now in a “data dependent” phase of monetary policy, and could surprise markets by either holding pat or announcing a larger-than-expected rate hike.

“If we are surprised on the upside, we are still prepared to be forceful,” deputy governor Sharon Kozicki said after the last rate hike in December.

“But we recognize that we have raised interest rates rapidly and that their effects are working their way through the economy. In other words, we are moving from how much to raise interest rates to whether to raise interest rates.”

Economic data since December has come in stronger than expected, with particular strength in the labour market. Because the bank is intentionally trying to slow down the economy, this resilience through the final quarter of 2022 argues in favour of another hike.

Analysts will be watching for hints about the trajectory of future interest rates. Will Mr. Macklem be explicit about the end of the rate-hike cycle, or will he maintain that decisions will depend on incoming data? Will there be any mention of holding rates at their current level for an extended period? All eyes will be on the press conference.

The bank will also publish its quarterly Monetary Policy Report, containing new economic growth and inflation forecasts. In its last report from October, the bank said it expected GDP growth to stall through the first half of 2023, putting the economy on the edge of recession. Watch for any explicit mentions of the R-word.

Read more about today’s expected Bank of Canada interest rate hike announcement.

– Mark Rendell

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