Bank of Canada Holds Rates Again

January 24, 2024 - The Bank of Canada (BoC) announced today that it is holding its policy interest rate at 5.00%, while continuing quantitative tightening. The bank's announcement also included a brief forecast for Canada's GDP:

• Growth will likely remain close to zero through Q1 2024, implying that GDP in Q4 2023 was not strong.
• GDP growth in 2024 will be anemic - around 0.8% for the year.
• 2025 GDP growth is expected to be a healthier 2.4%.
• Globally, GDP is expected to be 3.0% in 2023, 2.5% in 2024 and 2.75% in 2025.

Given the Bank's projection for global economic performance, Canada will be underperforming. The BoC lays this at the door of persistent underlying inflation. 

Today's announcement stressed the Bank's concern about inflation and "its commitment to restoring price stability for Canadians." While this is somewhat hawkish, it is our opinion that they are really talking about maintaining, rather than increasing, the policy rate until inflation is sustainably back in the control range of 1% to 3%. They haven't explicitly taken rate increases off the table, but it doesn't appear that they see them as necessary at this time. The announcement calls for inflation to "remain close to 3% during the first half of this year" and returning to the 2% target in 2025. This wording argues, we believe, that we shouldn't expect rate reductions until the middle of 2024 at the earliest.

The Bank's announcement is available here.