CIBC Private Wealth
March 09, 2023
BoC holds rates steady as it continues quantitative tightening
Yesterday the Bank of Canada (BoC) announced it’s holding the overnight policy rate steady at 4.5% as it continues its quantitative tightening policy. The BoC notes “global growth continues to slow, and inflation, while still too high, is coming down.” This is a positive sign of hope for Canadians.
In January 2023, inflation eased to 5.9%. This reflected lower price increase for durable goods, energy and some services. However, Canadians continue to experience price increases for food and shelter that unfortunately remain high.
Over the next couple of quarters, the BoC is expecting weak economic growth. The good news is pressures in product and labour markets are expected to ease. This will hopefully help moderate wage growth and discourage businesses from passing on higher costs to their customers.
CIBC Economics notes before deciding if the BoC should raise interest rates again this year, it first needs a clearer picture on growth and inflation prospects. Although CIBC Economics currently expects yesterday’s interest rate announcement will begin a lasting pause on increases, the door is always open to future BoC rate hikes if necessary.
David Wong, Managing Director and Head, Total Investment Solutions at CIBC Asset Management says the market’s interpretation in Canada is the cup is half full when it comes to the BoC’s tightening policy. While Canadian unemployment data continues to be unusually low, inflation data and GDP both support yesterday’s decision to hold rates. However, concerns remain that complacency now could lead to urgency later this year. With the US central bank on a different rate path, the market will take its cues according to the cross section of data in the coming weeks.
Leslie Alba, Director, Portfolio Solutions, Total Investment Solutions at CIBC Asset Management believes investors should stay focused on the benefits of diversification by holding a mixture of both stocks and bonds in their portfolios. During these uncertain times where investors and asset managers alike are keeping a close eye on market volatility, Ms. Alba advises investors to remain unmoved from their long-term investment objectives. Staying diversified can mitigate extreme negative scenarios and allows investors to realize the compounding effects that come from the financial productivity of sound companies and credit-worthy governments and corporate borrowers.
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