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Special Report

Canada Monetary Policy
Research Brief

July 2023

Central Bank Increases Policy Rate Again;
Potential to be the Last Hike as Pressures Ease

Policy rate ticks up again. The Bank of Canada increased its overnight rate 25 basis points to 5.0 per cent at its July meeting. The Central Bank has now moved its policy rate up 475 basis points since March 2022 as inflation remains above the BoC’s target of 2.0 per cent. In its announcement, the Bank stated stronger-than-expected consumption, a turnaround in the housing market, resilient employment growth, as well as sticky core inflation and still-elevated inflation expectations, as the main reasons to continue its monetary tightening cycle. While the BoC did state that it anticipates consumption to ease, along with the labour market, it remains concerned that progress toward the 2.0 per cent target could stall and remain stuck around 3.0 per cent. Despite these concerns, and limited forward guidance, the general consensus among economists is that this may be the final rate hike of this cycle, as the labour market is loosening, core inflation is declining and inflation expectations are normalizing. However, if inflation does not continue to trend down, further hikes remain a possibility. 

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