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Special Report

Canada Monetary Policy
Research Brief

September 2023

Investor Optimism Likely to Build as Central
Bank Hits Pause on Interest Rate Hiking Cycle

Central Bank moves to the sidelines amid softening economy. As expected, the Bank of Canada held its overnight rate steady at 5.0 per cent during the September meeting. This comes after the Central Bank resumed rate hikes in June and increased its benchmark rate 25 basis points at two consecutive policy meetings. With the unemployment rate trending up for three straight months through July, along with domestic demand beginning to cool and the economy contracting in the second quarter, these factors were enough to convince the Bank that price growth is likely to continue easing over the medium-term. Consequently, interest rate swap probabilities suggest that borrowing costs will hold steady heading into 2024. The BoC did state that it remains concerned about the persistence of underlying inflationary pressures, and it is prepared to increase the policy rate further if needed. In particular, the Bank will be closely watching the evolution of excess demand, inflation expectations, wage growth and corporate pricing. 

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