Canada Monetary Policy
Research Brief

Conditional pause continues. For the second straight month, the Bank of Canada held its policy rate at 4.5 per cent. While the Central Bank did state that GDP growth in the first quarter appeared to be stronger than forecast — due to a tight labour market and a healthy rise in exports — it still expects economic growth and inflation to moderate. As more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption should soften. Also, with recent turmoil in the U.S. banking sector tightening credit conditions further, international growth may stall over the coming months, causing Canada’s exports to drop. Nonetheless, the Bank did state that it will continue to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the overnight rate further if needed. However, recent data suggests that inflation will continue to cool, making an additional rate hike unlikely. A rate cut in early 2024 is now the more probable outcome.