BANK OF CANADA: STAYING ON THE SIDELINES LOOKS LIKE AN EASY DECISION

Next week, the Bank of Canada will have its monetary policy meeting. Market participants see the central bank keeping rates unchanged. Analysts at RBC point out the central bank will likely stay on hold despite the fact that economic growth have been more resilient than expected. 

Bank of Canada to stay on the sidelines 

“The central bank is widely expected to make a second consecutive decision to hold. This is despite economic growth that’s been more resilient than expected so far this year.”

“So why hold interest rates again when the economy is still running hot? The BoC’s pause on rate hiking was driven by an expectation that growth would stall through mid-2023, and Governor Macklem said it would take an “accumulation of evidence” to the contrary for it to resume tightening.”

“Cooler inflation readings have been encouraging—particularly since the softening has come even before the full effect of higher interest rates hits household purchasing power. And the recent round of financial instability is a reminder that aggressive interest rate increases over the last year could yet have unexpected consequences.”

“Inflation (and the broader economy) are still running too hot for the BoC to actively consider cutting interest rates but staying on the sidelines for now looks like an easy decision to make.”