Bank of Canada announces March rate decision

Are rate cuts on the way?

By Fergal McAlinden
06 Mar. 2024

The Bank of Canada has left its benchmark rate unchanged in its latest decision, keeping rates where they are for the fifth time in a row.

The central bank said on Wednesday morning that it was maintaining its overnight rate, which leads variable mortgage rates in Canada, at its current level of 5.0%. That means the rate remains at a 22-year high but has not increased since July of last year.

After a series of rapid interest rate hikes throughout 2022 and 2023, recent announcements by the Bank have contained little in the way of surprises – and its latest statement was no different. Markets had seen virtually no chance of a rate cut today, although sentiment is more bullish about a possible move toward lower rates in April or June.

The Bank said it remained “concerned” about risks on the inflation outlook, and that it needed to see “further and sustained easing” in core inflation in the months ahead.

Inflation ticked downward by more than expected at last reading, hitting 2.9% with the consumer price index (CPI) inching toward the Bank’s target rate.

However, the Canadian economy has also defied expectations of a recession, expanding in the fourth quarter and growing at a 1.0% annualized rate as gross domestic product (GDP) also likely increased in January.

While it left rates unchanged in January, the central bank dropped language from prior statements indicating a preference toward further hikes – and economists surveyed by Bloomberg had suggested no movement up or down was likely in today’s announcement, with June likely to mark the first move in the Bank’s rate-cutting salvo.

The Bank is expected by those economists to ease the policy rate to 3% by the end of 2025, with traders estimating chances of a cut at its next meeting – scheduled for April 10 – at around 33%.

Are rate hikes now a thing of the past?
The Bank of Canada slashed its benchmark rate to a rock-bottom 0.25% at the onset of the COVID-19 pandemic, easing borrowing costs as the escalating public health crisis ground the economy to a halt.

It kept rates at that level for nearly two years, ending that streak with a 25-basis-point hike in March 2022 amid growing concerns over rising inflation and introducing nine further hikes until last July.

With inflation ticking resolutely downwards from a 39-year high of 8.1% in the summer of 2022, the central bank has softened its tone on the prospect of further hikes in recent months – and governor Tiff Macklem all but confirmed at the end of last year that rate cuts were on the way.

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