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Canada Monetary Policy September 2023

Canada: Bank of Canada keeps rates unchanged in September

On 6 September, the Bank of Canada (BoC) left the target for the overnight rate at 5.00%, and announced it was continuing to reduce the stock of outstanding government bonds.

The decision to keep rates unchanged was driven by signs that the economy is slowing and excess demand is easing. Moreover, given the lagged effect of monetary policy, the Bank wanted to assess the impact of past rate hikes on the economy before any potential further monetary tightening.

In its press release, the Bank said that it was “concerned about the persistence of underlying inflationary pressures”, and was willing to hike more if required to tame inflation. Higher-than-expected inflation in August—data which was released after the BoC’s meeting—raises the odds of further tightening ahead.

The BoC’s next policy announcement will be on 25 October.

On the outlook, TD Economics’ James Orlando said:

“Markets are still in the ‘will they, won’t they’ camp, with pricing for another hike around 50%. Given that the slowdown looks to continue, we think the bar for another hike has been raised.”

Goldman Sachs analysts are more hawkish:

“Given our forecast that inflation will remain firm and activity will pick up over 2023H2, we continue to expect the BoC will hike again this year, and forecast a final hike at the October meeting for a terminal rate of 5¼%.”

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