Notes From the Desk – Bank of Canada Rate Announcement – A Tentative Step Closer
To no one’s surprise, the Bank of Canada held the policy rate steady at 5%, while continuing the process of reducing their balance sheet (Quantitative Tightening).
Most of what the Bank pointed out in their short press statement would have made Captain Obvious proud.
- After two-quarters of economic growth hovering around zero, the Bank has deemed that ‘the economy is no longer in excess demand’. They also expect US growth to ‘weaken in the months ahead’.
- With the unemployment rate steadily rising, they also feel that the labour market is no longer tight. But wage growth in the 4-5% range makes the Bank very uncomfortable
- Headline CPI is trending lower, however, core inflation persisting at 3.5% means it is far too early to declare victory.
The bond market had already factored in everything the Bank pointed out this morning, so the statement had a minimal impact on rates. Barring an acceleration in inflation (we see little chance of this), the excitement for bond nerds will now be predicting which meeting in 2024 marks the beginning of a rate-cutting cycle. Currently, the expectation is for cuts to begin in the spring with two being delivered by June.