Bank of Canada holds key interest rate steady for first time in a year. Here’s what’s next

12:30 p.m.

What’s next?

• Bank of Canada senior deputy governor Carolyn Rogers will deliver a speech to the Manitoba Chambers of Commerce on Thursday at 1:55 p.m. ET, then hold a press conference at 3:10 p.m. ET. The speech will lay out the governing council’s outlook for the economy as well as its rationale for this week’s rate decision.
• The U.S. Federal Reserve’s Federal Open Market Committee meets on March 20-21. The committee is widely expected to deliver another rate hike, pushing U.S. interest rates above Canadian rates for the first time in this rate-hike cycle.
• Statistics Canada will publish February labour force survey data on Friday. After adding a massive 150,000 jobs in January, the Bank of Canada will be watching for signs that the labour market began to cool in February. The next inflation numbers come on March 21, when Statscan publishes consumer price index data for February.

– Mark Rendell

12:10 p.m.

BoC pause puts it at odds with Federal Reserve

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The Bank of Canada’s decision to hit pause puts it at odds with the U.S. Federal Reserve. While the BoC moved to the sidelines Wednesday, the Fed appears to be gearing up for several more interest-rate hikes – a dynamic that could put downward pressure on the Canadian dollar.

On Tuesday, Fed chair Jerome Powell told a Senate committee that U.S. interest rates would likely need to move higher than previously anticipated. He also said the pace of rate hikes may need to increase, opening the door to another half-point increase this month.

Some economists argue that the Bank of Canada is right to stop raising rates before the Fed. Inflation is lower in Canada, and the combination of higher household debt levels and shorter mortgage terms means the Canadian economy is more sensitive to rising borrowing costs.

However, a further drop in the Canadian dollar relative to the U.S. dollar would increase the cost of imports, further stoking inflation.

“The ability to chart a different course than the Fed comes down to the exchange rate,” wrote Royce Mendes, head of macro strategy at Desjardins Securities, in a note to clients. “The Canadian dollar has depreciated 3 per cent since the beginning of February. That could eventually push inflation higher, but apparently not enough in the view of central bankers to offset the risks of raising rates higher in a country where households are so heavily indebted.”

– Mark Rendell

11:45 a.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 5.9 per cent in January from a year earlier, slowing from the 6.3-per-cent pace in December.

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

– Globe staff

11:30 a.m.

David Parkinson: BoC focuses attention on the labour market – and wage growth

The Bank of Canada’s interest-rate announcement didn’t tell us much that we didn’t already know. But it may have shined a bit more light on the areas the central bank is focusing on.

First, the big picture: The bank seemed pretty determined to hold its key rate steady at 4.5 per cent.

The statement accompanying that decision concludes that economic developments have evolved “broadly in line” with what the bank had anticipated in its January Monetary Policy Report – despite describing key global markets as stronger than expected, Canada’s economic growth as weaker than expected and the labour market as “surprisingly strong.” It spelled out inflation numbers that are still considerably higher than the bank’s 2-per-cent target (even the three-month annualized rate, an indicator of the recent trend, is about 3.5 per cent), yet spoke confidently that inflation “pressures in product and labour markets are expected to ease” as the economy slows.

Taken together, it sounds like a central bank that was predisposed to keeping its key rate steady unless it had a highly convincing reason to do otherwise. Which was pretty much how the bank had characterized its thinking leading up to this rate decision.

That said, the bank is still bothered by the strength of the labour market – and, more specifically, wage growth.

The bank pointed out that wages continue to increase at an annual rate of 4 to 5 per cent – the same pace it cited in the January MPR, when it said it believed wage growth had “plateaued.” It also noted that labour productivity – the amount of goods and services produced per worker – has “declined in recent quarters.”

That’s a serious concern, given what the bank said about wage growth and productivity in January: “Unless a surprisingly strong pickup in productivity growth occurs, sustained 4 per cent to 5 per cent wage growth is not consistent with achieving the 2 per cent inflation target.”

Now that the bank has essentially reiterated that concern, we might look to it as a focal point to assess whether 4.5 per cent is, indeed, high enough to let the air out of inflation. It will be interesting to see how long the bank will stay patient on this.

– David Parkinson

11 a.m.

Economists react to today’s BoC rate announcement

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

Avery Shenfeld, chief economist at CIBC Capital Markets: “The Bank of Canada needs a clearer picture on growth and inflation prospects to decide if it needs to hike again or more definitively set aside that prospect, and with so little time since its last decision, it simply doesn’t have enough data to make that call. Hence, to no surprise, the bank opted to leave its policy rate unchanged, maintaining its language that while it expects this will be a lasting pause, the door is open to a further hike if necessary.”

Royce Mendes, head of macro strategy at Desjardins Securities: “The Bank of Canada’s conditional commitment to keep rates on hold will place a magnifying glass on the divergence in monetary policy with the U.S. Federal Reserve. The ability to chart a different course than the Fed comes down to the exchange rate. The Canadian dollar has depreciated 3 per cent since the beginning of February. That could eventually push inflation higher, but apparently not enough in the view of central bankers to offset the risks of raising rates higher in a country where households are so heavily indebted.”

Stephen Brown, deputy chief North America economist at Capital Economics: “As the popularity of variable-rate mortgages means higher interest rates are feeding through to the real economy faster than elsewhere, and the January CPI data were also encouraging, it still seems unlikely that the bank will be forced to resume raising rates. The bigger risk to our forecasts is that the bank may not be prepared to cut them as soon as we expect, at the end of this year.”

– Matt Lundy

10:45 a.m.

Markets react to today’s BoC rate announcement

Bond traders seemed a bit wrong-footed in the wake of the announcement and are still searching for an appropriate level for the two-year yield. The yield initially dropped 8.0 basis points to 4.24 in the 30 minutes after the announcement. The yield has since recovered to 4.3 per cent.

Read the latest market wrap on Bank of Canada.

– Scott Barlow

10:30 a.m.

What to expect after today’s Bank of Canada decision

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A reminder that today’s Bank of Canada announcement is one of the four interest-rate decisions each year that is not accompanied by a quarterly Monetary Policy Report. As a result, the initial communications are pretty slim - all we get is the seven-paragraph news release (a touch longer than the typical non-MPR announcement) to announce the decision and describe the economic conditions behind it.

The bank doesn’t hold a same-day media conference after these non-MPR rate decisions. However, it does provide a speech from one of its top officials the day after the announcement, to help shed additional light on the rate decision. It refers to these speeches as “economic progress reports.” Senior Deputy Governor Carolyn Rogers gets the honours this time, addressing the Manitoba Chambers of Commerce in Winnipeg at 1:55 pm ET Thursday. She’s scheduled to hold a news conference after the speech.

– David Parkinson

10 a.m.

Bank of Canada holds rate steady at 4.5 per cent

The Bank of Canada held its benchmark interest rate steady at 4.5 per cent 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 widely anticipated decision makes the Bank of Canada the first major central bank to halt monetary policy tightening. It puts the bank on a different trajectory than the U.S. Federal Reserve, whose officials have said they expect to increase rates several more times.

The Bank of Canada has raised its overnight rate eight consecutive times since March, 2022, hammering the housing market and squeezing Canadians’ finances in an effort to cool demand in the economy and slow the pace of price growth. While inflation remains high, bank officials believe they have done enough to guide it back down to the bank’s 2-per-cent target over time.

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

– Mark Rendell

9 a.m.

David Parkinson: Will BoC hold rates steady?

There’s been so much talk since the Bank of Canada’s January rate decision about the central bank shifting to a holding pattern on interest rates, it’s easy to forget that the bank has not actually had a rate announcement in which it has held steady.

So, that’s the first thing we want to look for in Wednesday’s interest-rate decision: whether the bank does, indeed, keep its policy rate steady for the first time in more than a year, holding the line at 4.5 per cent. The bank did strongly signal its intent to do that in the January announcement, provided the economy played out pretty much the way it expected over the intervening six weeks. The bank’s comments since then have indicated that it has set the bar pretty high for further rate hikes; the financial markets don’t believe the economic data since have cleared that bar, and neither do I. (Yes, job creation remains much stronger than the bank would like. But gross domestic product also ended 2022 weaker than the bank had thought.)

At the same time, a rate cut is certainly not on the table at these deliberations. So, look for a confirmation of that holding pattern.

The bank likes to save the best for last in these announcements. The meat of the decision – including the actual rate setting, and any guidance on future direction for rates – will appear in the last paragraph.

It’s higher up, though, that the nuances of the message could get interesting.

In January, the bank stressed that it would be willing to resume rate hikes if the economy and inflation weren’t slowing the way it expected. The bank’s assessment of where the economy now stands will be critical to understanding whether it feels the past six weeks of data have moved the needle on that in either direction. On that front, I’ll be looking to see where the bank puts its emphasis. If it dwells on concerns about the overheated labour market, it will place more urgency on seeing those job numbers weaken, and soon, to keep further rate increases at bay. If it focuses on other signs of a slowing economy, including the tepid GDP figures, it would increase the comfort that the bank will stay on hold for a while.

– David Parkinson

8 a.m.

Bank of Canada expected to pause rate-hike campaign

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One year after launching the most aggressive rate-hike campaign in a generation, the Bank of Canada is widely expected to hit pause on Wednesday, holding its benchmark interest rate steady at 4.5 per cent.

The monetary policy decision will be announced in a one-page document at 10 a.m. ET.

The central bank has raised rates eight consecutive times since last March, pushing up Canadian borrowing costs and hammering the housing market. While consumer price inflation remains worryingly high, central bank officials believe that interest rates are now high enough to guide inflation back down to the bank’s 2-per-cent target. That led Governor Tiff Macklem to announce a “conditional pause” to further rate hikes after the last rate announcement in January.

If the bank stands pat on Wednesday, it would be the first major central bank to halt its campaign against inflation. That would put it on a different trajectory than the U.S Federal Reserve, potentially putting downward pressure on the Canadian dollar. On Tuesday, Fed chair Jerome Powell said U.S. interest rates may need to move higher than previously thought, and that the Fed was open to increasing the pace of rate hikes.

Mr. Macklem has not ruled out additional rate increases if the Canadian economy proves more resilient, and inflation proves stickier, than the bank is forecasting.

Recent economic data has been mixed. The labour market added far more jobs than expected in January, while GDP growth came in surprisingly slow in the fourth quarter of 2022. Consumer price index inflation was milder-than-expected in January, clocking in at 5.9 per cent year-over-year, down from 6.3 per cent in December.

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

– Mark Rendell