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The latest on the Bank of Canada's rate decision

The Bank of Canada held its benchmark interest rate steady at 4.5 per cent on Wednesday, pausing its year-long campaign to increase borrowing costs while leaving the door open to further rate hikes if inflation doesn’t slow as quickly as expected.

The central bank expects inflation to fall to 3 per cent by the middle of the year, according to an updated forecast. It also revised its economic growth forecast to reflect the surprising resilience of the Canadian economy in early 2023. It now expects 1.4 per cent GDP growth in 2023, up from 1 per cent forecast in January.

Follow live updates below.

1 p.m.

What’s next?

  • Bank of Canada Governor Tiff Macklem is taking part in a “fireside chat” hosted by the International Monetary Fund in Washington on Thursday. The subject is “Economic growth and inflation: the view from Canada.” The conversation will be broadcast on the IMF’s website at 9 a.m. ET.
  • Statistics Canada will publish March inflation data on Tuesday, April 18. The past two Consumer Price Index releases have come in below expectations, showing a faster-than-expected decline in headline inflation.
  • The Federal Reserve’s Open Market Committee meets on May 2 and 3. Financial markets expect the Fed to raise its benchmark rates by another quarter-point. After that, the outlook is murkier. Fed Chair Jerome Powell said last month that stress in the financial sector could lead to a contraction in bank lending, potentially acting as a substitute for additional monetary-policy tightening.

– Mark Rendell

12:45 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 fell to 5.2 per cent in February, the biggest drop since the early stages of the pandemic, although grocery prices are still climbing by more than 10 per cent.

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

– Globe staff

12:30 p.m.

Mortgage calculator: Here’s how rising interest rates affect the cost of your mortgage

The central bank’s rapid and successive interest rate hikes – from 0.25 per cent to 4.5 per cent – are putting pressure on the real estate market and on homeowners, who are now paying more interest on their mortgage.

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 calculator to help you compare how different interest rates affect the cost of your mortgage.

– Globe staff

11:50 a.m.

Can Canadians expect a Bank of Canada interest rate cut?

Mr. Macklem, on why the Bank of Canada doesn’t see a rate cut on its horizon: “We expect it to be around 3 per cent this summer; that is going to be some relief for Canadians. But the destination is not 3. The destination is to restore price stability. It’s really important that we do centre inflation around 2 per cent. And there are a number of things that still need to happen if we’re going to get inflation back to 2 per cent.”

“We’re going to need to see more progress if we’re going to get inflation down to the 2-per-cent target. And so what that means is that it may be necessary for interest rates to stay elevated for longer to get that job done.”

– David Parkinson

11:45 a.m.

BoC’s Carolyn Rogers says U.S., Swiss banking crisis is now ‘contained’

Senior deputy governor Carolyn Rogers, on the recent banking-sector stresses: “For now, at least, the immediate stress has been contained. That’s a good thing.”

Rogers says the immediate “contagion effects” were quickly contained by US and Swiss authorities. Now, she says, “the effects really start to move more into growth.” She says the U.S. and European growth could be slowed by the increased risks and slower lending.

– David Parkinson

11:35 a.m.

Bank of Canada press conference: Quotes from Macklem

Mr. Macklem, on the pace of wage growth: “Wage growth has been running at 4 to 5 per cent [annualized]. Unless there’s a surprising acceleration of productivity, that’s not consistent with 2-per-cent inflation. That needs to moderate.”

Mr. Macklem, on contribution of government spending to inflation pressures: “Government spending plans are not contributing to the slowing of growth that you see in our projection. But at the same time, they’re not standing in the way of getting inflation back to the 2-per-cent target.”

Mr. Macklem, on the status of the bank’s “conditional pause” on further rate hikes: “We also discussed the likelihood that interest rates, monetary policy needs to remain restrictive for longer to get inflation, all the way back to the target... What I can say about our deliberations is that based on the information we have today, the implied expectation in the market that we’re going to be cutting our policy rate later in the year - that doesn’t look today like the most likely scenario to us.”

– David Parkinson

11:30 a.m.

Macklem: ‘There’s going to be a couple of quarters of small negatives’

The Bank of Canada expects economic growth to slow in the coming quarters, but Governor Tiff Macklem said he is not forecasting a major contraction.

”When you’re forecasting small positives, you can’t rule out that there’s going to be a couple quarters of small negatives,” he said. ”We’re not forecasting large increases in unemployment. And in that sense, it’s not what people associate with the word recession,” he added.

After a stronger-than-expected growth in the first quarter, the bank revised its 2023 and 2024 GDP forecast. It now expects 1.4 per cent GDP growth in 2023, up from 1 per cent forecast in January. It downgraded its 2024 GDP growth forecast to 1.3 per cent from 1.8 per cent.

– Mark Rendell

11:25 a.m.

How markets are reacting to the BoC interest rate decision

Markets took the latest Bank of Canada news in stride. Canada’s 2-year bond yield, which is sensitive to changes in monetary policy, was down about 5 basis points in late morning trading. But that was mostly just following a dip in the U.S. bond of the same tenure, following a U.S. inflation report today that was modestly tamer than the Street consensus.

Interest rate probabilities, based on trading in swaps markets, are pricing in a 25 basis point cut in the Bank of Canada’s overnight rate by December - unchanged from prior to both Bank of Canada’s announcement this morning and the U.S. inflation report.

Here’s how money markets are pricing in further moves in the Bank of Canada overnight rate for this year as of 11 am ET. While the bank moves in quarter point increments, credit market implied rates fluctuate more fluidly and are constantly changing.

Meeting DateImplied RateBasis Points

Read the latest market update.

– Darcy Keith

11:15 a.m.

Macklem says “inflation is declining” at BoC press conference

Bank of Canada Governor Tiff Macklem said he is “encouraged inflation is declining” but remains committed to “staying the course” to get price growth back under control.

“Inflation is coming down quickly and is forecast to be around 3 per cent this summer,” Mr. Macklem said in an opening statement for the rate announcement press conference. “The economy is expected to grow modestly even as inflation comes down. This is good news, but it’s not job done.”

The bank held its benchmark rate steady at 4.5 per cent on Wednesday, keeping monetary policy in a holding pattern after a year of aggressive rate hikes.

Mr. Macklem presented a relatively upbeat view of the economy, which has held up remarkably well in early 2023 despite much higher borrowing costs. But he suggested the bank still needs to see a number of developments to get inflation back down to its 2-per-cent target.

“Inflation expectations have to come down further, service price inflation and wage growth need to moderate, and corporate pricing behaviour has to normalize,” Mr. Macklem said.

“Governing Council discussed whether we’ve raised rates enough and we considered the likelihood that the policy rate may need to remain restrictive for longer to return inflation to the 2 per cent target,” he said.

– Mark Rendell

11:10 a.m.

Analysis: Takeaways from the BoC rate decision and Monetary Policy Report

The message I’m taking from the Bank of Canada’s rate decision and Monetary Policy Report, at least on a quick first reading, is that the bank won’t be swayed to take its foot off the interest-rate pedal just because of a few encouraging inflation reports.

While it still sees the inflation rate retreating to about 3 per cent “in the middle of this year” (the wording leaves some wiggle room regarding the timing), it has turned its attention to the task of closing the gap from that rate to the bank’s 2-per-cent target. And it cautioned that the task “could prove to be more difficult.” We can reasonably take that as an early warning that the bank intends to keep the interest-rate pressure on even once we’re south of 3 per cent, to be sure to finish the job.

Notably, the bank’s inflation forecasts have moved little from the January MPR, despite a somewhat quicker-than-expected decline in the inflation rate early in the year (it sat at 5.2 per cent in February, significantly below the bank’s 5.4-per-cent call for the first quarter as a whole). Any early gains on the inflation front are offset by a couple of factors.

The bank has modestly increased its economic growth forecast for 2023. It also lowered its estimate for growth in “potential output” – the measure of the economy’s overall capacity to produce goods and services. That implies an economy with less economic slack as the year progresses – meaning, by extension, a bit more underlying inflationary pressure.

That said, the bank does project that the economy will be in “modest excess supply” in the second half of 2023. That does imply conditions in which the bank might see room to ease interest rates a bit – there will no longer be the need to maintain highly restrictive rate policy in order to lower demand in line with supply, as the bank’s high rates have been designed to do.

Helpfully, the bank specified the indicators it will be watching to be convinced that the 2-per-cent target is coming into reach. Its keys will be consumer inflation expectations; service-sector price and wage growth; and corporate pricing behaviour.

Surprisingly, the bank said remarkably little about the turmoil in the banking sector in the past month, which put markets on edge and suggested growing instability in the global financial system. It did warn about the potential for tighter credit conditions and slowdowns in lending, particularly in the United States, which have the potential to slow economic activity. And it talked a bit about increased uncertainty. But the broader message is that, while this is something that the Bank of Canada is watching, it’s not overly concerned at this point.

– David Parkinson

11 a.m.

Economists react to today’s BoC rate announcement

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

Avery Shenfeld, chief economist at CIBC Capital Markets: “As widely expected, the bank left the overnight rate unchanged at 4.5 per cent, and maintained its warning that it could still hike again if the economy fails to slow enough to sufficiently quell price and wage pressures. That’s still in contrast to market hopes for rate cuts later this year. After a flat Q4 [for gross domestic product], the upside surprise in Q1 growth hasn’t swayed it from the view that the desired slowdown is still on the way, with the statement citing a coming slowing internationally and the lagged impacts of prior rate hikes on Canadian households and business investment as reasons to expect ‘weak’ (but still positive) growth over the rest of this year.”

James Orlando, senior economist at Toronto-Dominion Bank: “The BoC held the line in today’s announcement. While it acknowledged that the economy is exhibiting cyclical strength as evidenced by strong employment gains and a bounce-back in consumer spending, it appears confident that growth is set to slow in the coming months. This slowdown, though delayed, has kept the faith that inflation will continue to decelerate, hitting 3 per cent year-on-year this summer.”

Royce Mendes, head of macro strategy at Desjardins Securities: “We continue to believe that the next move from the Bank of Canada will be a cut. As the lagged impacts of past monetary tightening make their way through the system, we see the economy weakening and inflation returning to the 2 per cent target. At that point, central bankers won’t need to employ such restrictive policy. For now, though, officials will be in a holding pattern. Inflation has shown some signs of progress, but there’s still work to do and it could take the rest of the year to get it done.”

– Matt Lundy

10:55 a.m.

What the BoC decision means for Canada’s housing market

The central bank’s decision to hold its key interest rate steady once again will likely give prospective home buyers another jolt of confidence to enter the housing market.

The number of home sales has been on the rise since the bank said last month that it would take a break from hiking rates. But the volume of homes available for sale is below historical averages.

“Housing market activity remains subdued,” said the bank in the text accompanying today’s interest rate announcement.

However, the dearth of homes for sale has started to fuel competition among the growing pool of would-be buyers. Across the country, realtors have reported that homes are once again drawing multiple offers.

In Toronto, the largest real estate market in the country, home prices increased by 2.5 per cent in March compared to February, hitting $1,118,500.

Although mortgages are more expensive than a year ago, homebuyers have been adapting to the higher borrowing costs. Realtors have reported that their clients are getting more financial help from their families and looking for smaller properties like condos instead of houses.

After today’s announcement, mortgage brokers and some private sector economists are doubling down on their predictions for an interest rate cut.

“We continue to believe that the next move from the Bank of Canada will be a cut,” said Desjardins Securities in a research note.

– Rachelle Younglai

10:45 a.m.

Opinion: Bank of Canada was right to hold interest rates steady, even if that was difficult

Being on the fence can be uncomfortable in the current inflationary environment – but for the latest rate setting on Wednesday, the bank was right to remain there.

Perching on the fence is uncomfortable for many reasons. First is the long lag time between setting interest rates and seeing the result. It can take 18 months or more for changes in interest rates to affect economic activity and then inflation. The bank’s rate hikes over the past year are moving inflation in the right direction. The year-over-year rate of inflation declined in February to 5.3 percent, well off its peak of 8.1 per cent in June, 2022. Still, all inflation measures remain well above the target.

Read the full opinion piece on today’s Bank of Canada decision.

– Don Drummond

10:30 a.m.

Opinion: Rate relief for borrowers requires a grimmer outlook for your personal finances

It’s sad to say, but a higher unemployment rate, lower wage increases and a frosty spring for housing would be helpful to the process of lowering interest rates for borrowers.

Where we are today in the economy is a case study in the toxicity of inflation. People with mortgages, credit lines and loans are staggering under the weight of high rates that won’t ease until inflation pulls back. On Wednesday, the Bank of Canada reaffirmed its view that we’re not there yet. Rates must hold at today’s high levels for a while longer, in part because there’s too much good economic news.

Read Rob Carrick’s latest column on the personal finance effects of steady rates.

– Rob Carrick

10 a.m.

Bank of Canada holds interest rate steady at 4.5 per cent

The Bank of Canada held its benchmark interest rate steady at 4.5 per cent, keeping monetary policy in a holding pattern with the expectation that inflation will fall quickly in the coming months.

The widely anticipated move reinforces the bank’s decision last month to pause its rate-hike campaign after eight consecutive increases.

Economic growth has been stronger than expected in early 2023, challenging the central bank’s efforts to slow consumer spending and curb price growth. But bank officials still expect the Canadian economy to effectively stall in the coming quarters – a dynamic that could be compounded by a pullback in commercial bank lending following recent turmoil in the U.S. and European banking sectors.

“Governing council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressure and remains prepared to raise the policy rate further if needed to return inflation to the 2 per cent target,” the bank said in its rate announcement statement.

The bank’s updated inflation forecast is little changed from January. It expects the annual rate of inflation to drop to around 3 per cent by the middle of the year, from 5.2 per cent in February. Inflation is then expected to decline gradually to 2 per cent by the end of 2024.

Meanwhile, the bank revised its GDP growth forecast to reflect the resilience of the Canadian economy at the start of the year. It now expects 1.4 per cent GDP growth in 2023, up from 1 per cent forecast in January. It downgraded its 2024 GDP growth forecast to 1.3 per cent from 1.8 per cent.

Read the latest on today’s Bank of Canada interest rate announcement.

– Mark Rendell

9 a.m.

Analysis: What to look for during today’s BoC decision

Open this photo in gallery:

Governor Tiff Macklem will take questions from reporters at 11 a.m. in Ottawa.BLAIR GABLE/Reuters

For the first time in more than a year, the biggest development in Wednesday’s policy decision and Monetary Policy Report won’t be about interest rates. They’re on hold, and they’re staying that way for a while yet.

No, the interesting stuff will be about the cracks that have surfaced in the global banking system – and how nervous the central bank feels about them.

The last rate decision from Governor Tiff Macklem and his colleagues, in early March, landed just before a series of bank failures and near-collapses that raised serious concerns about the health of the global financial sector. It will be very interesting to see the bank’s re-assessment of financial stability risks in this light, and how that might colour its stance on monetary policy.

My guess is that the bank will acknowledge some heightened concern and increased focus on financial stability, while emphasizing that its primary objective is inflation control. The implication will be that rate policy remains driven by the pace of the economy and how that affects the inflation outlook. Expect the bank to remind us that it has other tools, besides interest rates, to stabilize financial markets if needed.

Still, the details that the bank provides in the MPR might give us some sense of how nervous it is about the financial system tremors, and where its unease is focused. We can expect a tone of heightened uncertainty surrounding the bank’s outlook, maybe more of a wait-and-see mood than usual.

On the inflation front, I’ll be dissecting the bank’s updated outlook. The inflation rate, at 5.2 per cent in February, is already a bit below what the bank anticipated for the first quarter of 2023, and falling fast. In January, the bank indicated that it expected inflation to retreat to 3 per cent “in the middle of 2023,” but only return to its 2-per-cent target toward the end of 2024. Should those timelines shorten, it would imply that the bank might start easing interest rates sooner than markets had previously expected.

In the post-announcement news conference (11:00 a.m. EST), watch for reporters to see if they can extract anything from Mr. Macklem about the prospects for rate cuts on the horizon – a topic that, so far, the Governor hasn’t been willing to discuss, other than to say “it’s too early to discuss.” I also wonder if we’ll hear any sort of mea culpa from the Governor regarding how global central banks’ aggressive rate increases over the past year have helped fuel the banking-sector troubles.

– David Parkinson

8 a.m.

Bank of Canada expected to hold policy rate at 4.5 per cent

Open this photo in gallery:

Bank of Canada's rate decision will be released at 10 a.m EST, alongside an updated forecast for inflation and economic growth.Chris Wattie/Reuters

The Bank of Canada is widely expected to keep its benchmark interest rate steady at 4.5 per cent today, while pushing back against market expectations of rate cuts later this year.

The monetary policy decision will be released at 10 a.m EST, alongside an updated forecast for inflation and economic growth. Governor Tiff Macklem will take questions from reporters at 11 a.m. in Ottawa.

After eight consecutive interest rate increases, bank officials paused their rate-hike campaign last month, arguing that they needed time to assess whether borrowing costs were high enough to bring inflation back to the bank’s 2-per-cent target.

Mr. Macklem hasn’t ruled out further rate hikes if inflation proves more stubborn than expected. However, private-sector analysts see little chance that he and his team will restart monetary-policy tightening this week, and rate cuts are off the table until inflation falls further.

The economic backdrop to the decision is mixed. Canada’s economy held up better than expected in early 2023, largely defying efforts by the Bank of Canada to dampen consumer spending and push up unemployment. At the same time, recent banking-sector stress in the United States and Europe has raised concerns about financial stability and dimmed the economic-growth outlook.

The banking tumult has led investors to revise their expectations about the path of monetary policy. Markets now expect the bank to start cutting interest rates by the end of the year, and are pricing accordingly.

Analysts will be watching to see if the central bank pushes back against this market pricing. They’ll also have an eye on the bank’s latest economic growth and inflation forecasts. In January, the bank expected GDP growth to stall through the first half of 2023 and consumer price index inflation to fall to around 3 per cent by the middle of the year.

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

– Mark Rendell

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