The Bank of Canada (BoC) held the overnight rate at 5% today as it continues its policy of quantitative tightening. 

 

The global economy continues to slow and it’s helping reduce inflationary pressures in goods and services. Although inflation continues to ease, with CPI inflation at a rate of 3.1% in October, it remains above the target rate of 2%. Although rates held steady today, the BoC remains firm that future hikes could be in the cards if need be.

 

CIBC Capital Markets says the BoC’s decision today to leave rates unchanged was an easy one as it counts some recent small victories against elevated inflation. The drop in CPI inflation and the broadening of the cooling trend in inflation as a whole are both positives for the Canadian economy.

 

The Canadian labour market continues to ease from its extremely tight levels. Job vacancies continue to decline and the unemployment rate has modestly increased—suggesting the economy is no longer in excess demand. Household consumption continues to weaken and business investment is subdued.

 

Adam Ditkofsky, Senior Portfolio Manager, Global Fixed Income at CIBC Asset Management confirms this morning’s rate decision and accompanying comments by the BoC were pretty much in line with market expectations and as a result, caused limited excess volatility in the market. “The BoC cited growing evidence that past increases are dampening economic activity and relieving price pressures” says Mr. Ditkofsky. “This month’s statement was seen as being more dovish than the BoC’s statement in October as it eliminated comments that noted inflationary risks increased and added comments that the economy is no longer in excess demand. Derivative markets are currently pricing in two 0.25% (25 basis points) rate cuts during the first half of 2024, which we view as being premature given inflation remains above target.”

 

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