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Canada Monetary Policy April 2023

Canada: Bank of Canada keeps rates unchanged in April

On 12 April, the Bank of Canada (BoC) left its target for the overnight rate at 4.50%, and announced it was continuing to reduce the stock of outstanding government bonds.

The Bank’s decision was likely based on the belief that the 425 basis points of rate hikes since early 2022 would be sufficient to tame price pressures; indeed, both headline and core inflation have fallen notably in recent months from their mid-2022 peaks.

In its press release, the Bank suggested that it was prepared to hike further if needed. The BoC also seemed concerned about meeting the 2% inflation target, judging that sticky inflation expectations, price pressures in services and elevated wage growth would hamper the return to target, even as it expects inflation “to fall quickly to around 3% in the middle of this year.” Currently, the majority of our panelists do not see any more rate hikes. The Consensus is for monetary policy to remain unchanged in the next few quarters, with some mild easing penciled in by year-end.

The BoC’s next policy announcement will be on 7 June.

On the outlook, Goldman Sachs analysts said:

“We maintain our baseline forecast that the BoC does not hike again in 2023 because continued improvement in inflation should keep the BoC on hold, but continue to see a risk of further hikes this year if activity and inflation surprise to the upside.” 

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