Bank of Canada Pauses Interest Rate Hikes, Holds at 4.5%

For the first time in a year, the Bank of Canada (BoC) chose not to raise interest rates, announcing on Wednesday that it will hold its policy rate at 4.5%.

The pause comes after several weeks of speculation by industry experts that the bank would put an end to its aggressive rate hike cycle in March — something the bank itself said it hoped to do following the 0.25% January hike.

“At its January decision, the Governing Council indicated that it expected to hold the policy interest rate at its current level, conditional on economic developments evolving broadly in line with the MPR outlook,” the bank said in its announcement. “Based on its assessment of recent data, Governing Council decided to maintain the policy rate at 4.5%. Quantitative tightening is complementing this restrictive stance.”

With inflation having taken several small steps down in recent months, slowing to 5.9% in January, the BoC’s pause will buy it some time to see how the already-implemented hikes will continue to impact inflation — namely, whether they’re enough rein inflation in closer to the bank’s target of 2%.

Although the hike-less rate announcement undoubtedly brought some relief to borrowers, that breathing room may only be temporary. Many experts are bracing for another rate hike to hit this year, with some predicting it as soon as April. In a February report from BMO Economics, Chief Economist Douglas Porter noted that although the BoC would likely take a pause on rate hikes in March, “the market is now giving high odds to one more move.”

The bank confirmed the possibility of further increases in its Wednesday announcement, saying “Governing Council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Prior to the announcement, some experts were forecasting rate cuts later in 2023. Just last month, the BoC published the results of its Market Participants Survey, based on responses from roughly 30 financial market participants, including senior economists and strategists at banks, pension funds, asset management firms, and insurance companies. The median response from participants was an expectation that the BoC will cut interest rates by 25 basis points in October and again in December, bringing the policy rate down to 4% by the end of the year.

Of course predictions can only offer so much insight, and only time will tell whether there’s another pause, hike, or cut in store.

The next Bank of Canada rate announcement is scheduled for April 12.

Written by Laura Hanrahan for Storeys