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Canada Monetary Policy June 2023

Canada: Bank of Canada hikes rates in June

On 7 June, the Bank of Canada (BoC) raised the target for the overnight rate to 4.75%, and announced it was continuing to reduce the stock of outstanding government bonds. The BoC kept its policy stance unchanged at its previous two meetings in March and April.

The Bank’s decision to hike was likely influenced by the renewed uptick in inflation in April, a stronger-than-expected recent economic performance, a tight labor market and the recent rebound in the property sector. The BoC judged that, prior to the decision to hike, “monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target.”

In its press release, the Bank did not give any explicit forward guidance, although additional tightening seems likely if inflation and economic activity remain elevated ahead.

The BoC’s next policy announcement will be on 12 July.

On the outlook, Goldman Sachs analysts said:

“Given today’s surprise hike and hawkish commentary on activity and inflation we continue to expect a hike at the July meeting and a terminal rate of 5%.” 

Giving his take, TD Economics’ James Orlando said:

“With today’s hike, the BoC is back in hiking mode. Economic data are pointing to more strength and the Bank has yet to see any sign from the labour market that the economy is turning. We expect the BoC to hike again in July, bringing the policy rate to 5%.”

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