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Canada Monetary Policy March 2023

Canada: Bank of Canada keeps rates unchanged in March

On 8 March, 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 judged that the 425 basis points of rate hikes over the last year would be sufficient to return inflation to the 2.0% target; indeed, both headline and core inflation have fallen notably in recent months from their mid-2022 peaks. The BoC stated that it expects that “CPI inflation will come down to around 3% in the middle of this year”.

In its press release, the Bank reiterated that it intended to leave rates at their current level going forward, but was prepared to hike further if needed. This is in line with our panelists’ forecasts; the Consensus is for rates to stay broadly unchanged in the coming months before some minor monetary easing by end-2023. However, the target for the overnight rate is seen above 4% until next year, and a more-robust-than-expected domestic economy could yet spur further tightening.

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

On the outlook, Goldman Sachs analysts said:

“The statement acknowledged the stronger composition of the flat Q4 GDP print, and referred to surprisingly strong employment growth and elevated wage growth. […] We maintain our baseline forecast that the BoC does not hike again because improving inflation trend should keep the BoC on hold, but continue to see elevated risk of further BoC hikes this year.” 

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