Canada Monetary Policy
Research Brief

Policy rate unchanged for the first time in over a year. After eight consecutive interest rate hikes, the Bank of Canada paused its monetary tightening cycle. In its announcement, the Bank stated that the latest developments have evolved broadly in line with expectations, as economic growth is softening and inflation continues to cool. As a result, the Governing Council decided to hold the overnight rate at 4.5 per cent, and will continue to assess economic developments and the impact of past interest rate increases. While the general consensus suggests that inflation should return to the target range of 1 to 3 per cent later this year, the central bank stated that it is prepared to increase the policy rate further if inflation persists. An extremely tight labour market, growth in China and the Russian-Ukraine War remain key sources of upside risk to inflation. Nonetheless, with encouraging CPI data, it seems unlikely that the BoC will be forced to resume raising rates. The consensus among major banks suggests that rates will plateau at 4.5 per cent and begin to drop in the fourth quarter or early next year.