The Bank of Canada (BoC) recently held its key overnight rate at 5 percent and stated that while intrinsic inflation was still a concern, the focus of the bank is shifting to when to cut borrowing costs instead of whether to increase again.
The governing council of the BoC has held rates steady at four consecutive policy meetings after last increase in July. Annual inflation in December increased to 3.4 percent, a percentage higher than the central bank‘s 2 percent target but below a June 2022 peak of 8.1 percent.
During his remarks, Governor Tiff Macklem said: “Governing Council’s discussion of monetary policy is shifting from whether our policy rate is restrictive enough to restore price stability, to how long it needs to stay at the current level.”
Macklem later talked to reporters and said: “It is premature to discuss reducing our policy rate.”
Avery Shenfeld, Chief Economist at CIBC Capital Markets, said: “The Bank of Canada isn’t ready, willing or able to bring interest rate relief just yet, but dangled some hints that lower rates are on the way later this year.”
The BoC reiterated what was included in previous policy statements saying it was “prepared to raise the policy rate further if needed.” Meanwhile, in his opening remarks to reporters, Macklem revealed that the bank had not ruled out further rate hikes.
He said: “If new developments push inflation higher, we may still need to raise rates.
“If the economy evolves broadly in line with the projection we published today, I expect future discussions will be about how long we maintain the policy rate at 5 percent.”
Previously, Macklem had indicated that rates were most likely at their highest but recent remarks were the first time he talked about the potential timing of a cut.
Andrew Kelvin, chief Canada strategist at TD Securities, said: “(BoC governors) remain concerned about the persistence of underlying inflation. While they are almost certainly done with rate hikes, they are not looking for near-term rate cuts until we see further progress on the inflation front.”
