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Canada Monetary Policy March 2024

Canada: Central Bank stays put in March

On 6 March, 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 Bank judged that it was premature to begin monetary easing, as headline inflation is still close to the top of the Bank’s 1.0%–3.0% target range, while the Bank’s preferred metric of core inflation was above the target range.

The Bank of Canada did not provide specific forward guidance on future interest rate moves, and highlighted its desire to see further and sustained easing in core inflation—a likely prerequisite for rate cuts. The Consensus is for the target for the overnight rate to end this year over 100 basis points below its current level, with most panelists expecting rate cuts to ensue from Q2.

On the timing of rate cuts, TD Economics’ James Orlando said:

“A June cut is nearly 90% priced, and we agree with that timing. In spite of the economy having avoided recession, consumers are feeling the pain of higher rates. Spending per capita has contracted over the better part of the last 18 months. And it is not as if rate hikes aren’t impacting inflation. Sure, the BoC’s core measures are still elevated, but they are being driven by shelter prices.”

In contrast, EIU analysts see monetary easing beginning slightly later:

“EIU believes that the BoC will start to reduce its policy rate in July, following the lead of the Federal Reserve (Fed, the US central bank). The BoC will then continue to cut the rate regularly until the end of 2025.”

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