Tiff Macklem is expected to hold the benchmark overnight rate at 4.5% on Wednesday
Author of the article:
Bloomberg News
Erik Hertzberg
Published Mar 07, 2023 • Last updated 9 hours ago • 3 minute read
Join the conversation
Bank of Canada Governor Tiff Macklem in Ottawa. Photo by Adrian Wyld/The Canadian Press files The Bank of Canada is set to become the first major central bank to hit pause on interest rates, with all eyes on what policymakers will say about the next steps.
Advertisement 2 This advertisement has not loaded yet, but your article continues below.
THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY Subscribe now to read the latest news in your city and across Canada.
Unlimited online access to articles from across Canada with one account Get exclusive access to the National Post ePaper, an electronic replica of the print edition that you can share, download and comment on Enjoy insights and behind-the-scenes analysis from our award-winning journalists Support local journalists and the next generation of journalists Daily puzzles including the New York Times Crossword SUBSCRIBE TO UNLOCK MORE ARTICLES Subscribe now to read the latest news in your city and across Canada.
Unlimited online access to articles from across Canada with one account Get exclusive access to the National Post ePaper, an electronic replica of the print edition that you can share, download and comment on Enjoy insights and behind-the-scenes analysis from our award-winning journalists Support local journalists and the next generation of journalists Daily puzzles including the New York Times Crossword REGISTER TO UNLOCK MORE ARTICLES Create an account or sign in to continue with your reading experience.
Access articles from across Canada with one account Share your thoughts and join the conversation in the comments Enjoy additional articles per month Get email updates from your favourite authors Economists and markets expect Tiff Macklem and his governing council to hold the benchmark overnight rate at 4.5 per cent on Wednesday, ending a streak of eight consecutive increases. That would follow through on a January pledge to keep rates where they are while the bank assesses the impact of its tightening campaign.
Financial Post Top Stories Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.
By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails or any newsletter. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300
The statement-only decision, due at 10 a.m. in Ottawa, won’t include new forecasts but may offer a glimpse into how comfortable officials are staying put as their global peers — including the U.S. Federal Reserve — push rates higher.
Economists surveyed by Bloomberg see Macklem holding rates steady through most of this year. Traders, however, are pricing in about an 80 per cent chance of another quarter-percentage-point hike at some point in 2023. Just over a month ago, they were betting the Bank of Canada would start cutting as early as this fall.
Article content This advertisement has not loaded yet, but your article continues below.
Article content That shift is partly the result of hotter-than-expected economic data in the U.S., where stubborn inflation has led short-term money markets to bet on Chairman Jerome Powell raising the Fed funds rate to 5.5 per cent or higher. After the U.S. central bank chief told lawmakers rates will likely have to go higher than previously anticipated, bets on the Fed’s next move tilted toward a half-percentage-point hike instead of a quarter-point move.
That would test the Bank of Canada’s resolve, as most economists say it can only comfortably lag the policy rate of its powerful neighbour by about 100 basis points.
“They risk watching the currency tumble,” Derek Holt, head of capital markets economics at Bank of Nova Scotia, said by email. “The loonie has already depreciated by enough on a real effective exchange rate basis to be of concern to import price pass-through effects and inflation expectations.”
This advertisement has not loaded yet, but your article continues below.
Article content The Canadian dollar is the second-worst performing G10 currency versus the U.S. dollar over the past six months. It fell to its lowest level since November on Tuesday, trading at $1.3733 per U.S. dollar as of 11:27 a.m. in Ottawa.
Macklem’s officials have downplayed fears about rate divergence. “We shouldn’t be too concerned if Canada follows a slightly different path to normalization than our counterparts,” Deputy Governor Paul Beaudry said in speech last month, adding that “what matters most” is getting inflation back to its two per cent target.
The Bank of Canada said its pause is contingent on the economy evolving broadly in line with forecasts that include near-zero growth for the first three quarters of 2023 and inflation returning to target next year. But muddled data are making it difficult for officials to understand exactly how heavily the past year’s rate hikes are weighing on the economy.
This advertisement has not loaded yet, but your article continues below.
Article content Output stalled at the end of last year as businesses pared down inventories, but a rebound in consumption and household spending points to continued resilience among Canadian consumers, despite their large debts. The jobs market is hot, and most economists see a soft landing as the base-case scenario. Prices in the rate-sensitive housing market have fallen 15 per cent since their peak early last year — but there are now signs of recovery.
Federal Reserve rates likely to go higher: Jerome Powell Bank of Canada to hold rates steady to year-end: budget watchdog ‘Almost all’ Fed officials backed 25 basis point hike at last meeting Most importantly, inflation has started to moderate, slowing to 5.9 per cent in January from a peak of 8.1 per cent in the middle of last year. Underlying core measures, meanwhile, remain stuck around five per cent.
Advertisement 6 This advertisement has not loaded yet, but your article continues below.
“We still think the most likely scenario is that the BoC will not need to hike interest rates further this year,” Royal Bank of Canada economists Nathan Janzen and Claire Fan said Monday in a report to investors. “That call hinges on whether the previous hikes are enough to slow consumer spending and labor market momentum in the months ahead.”
Wednesday’s decision won’t be accompanied by a press conference. However, Senior Deputy Governor Carloyn Rogers will deliver remarks and take questions from reporters on Thursday in Winnipeg.
The bank will release a minutes-like summary of deliberations for the decision on March 22. Nearly three quarters of analysts surveyed by Bloomberg said the first iteration of the new publication included useful or worthwhile information.
Bloomberg.com