ERIK HERTZBERG/ RANDY THANTHONG-KNIGHT (BLOOMBERG) - The Bank of Canada held interest rates steady and kept the door open to further hikes, with economists seeing its historic tightening cycle at its likely end point.

Policymakers led by governor Tiff Macklem maintained the benchmark overnight lending rate at five per cent on Sept. 6, the highest level in 22 years. They acknowledged a rapid downshift in the economy and warned that price pressures are proving tough to wrestle all the way back to their target.

“With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, Governing Council decided to hold,” the bank said. Officials, however, remain “concerned about the persistence” of underlying inflation and are “prepared to increase the policy rate further if needed.”

The move was expected by economists in a Bloomberg survey and market reaction was muted. The loonie dipped, trading at $1.3660 per U.S. dollar at 12:11 p.m. Ottawa time. Yields on benchmark Canada two-year bonds were up slightly to 4.701 per cent.

While the rate statement suggests policymakers are comfortable waiting to assess how the deteriorating economy will restore price stability, officials are still bothered enough by the persistent momentum in inflation to remain cautious.

They’re also weighing the cumulative impact of 475 basis points of hikes since March 2022. Keeping a hawkish bias this time around contrasts with January’s explicit pause signal and is likely enough to keep premature bets on rate cuts at bay — especially if Macklem is able to reinforce his inflation worries in a speech and press conference Thursday in Calgary.

Most analysts think the Bank of Canada is finished raising rates.

“We doubt it will need to follow through” with another hike, Stephen Brown, an economist at Capital Economics, said in a report to investors. Doug Porter, chief economist at Bank of Montreal, agreed, arguing that “unless growth rebounds in Q3 — which we doubt — the BoC is likely done with rate hikes.”

Economists surveyed by Bloomberg before the decision see the bank’s next move as a cut in April of next year.

In a rare public reaction to a monetary policy decision minutes after it was released, Prime Minister Justin Trudeau’s government praised Macklem for holding interest rates steady.

“The Bank of Canada’s decision to maintain its overnight interest rate is welcome relief for Canadians,” Finance Minister Chrystia Freeland said in a statement. Though she noted she respects the central bank’s independence, she said she’d use all the tool at her disposal to “ensure that interest rates can come down as soon as possible.”
Her comments reflect the increasing political pressure policymakers face as they try to slow the economy without causing unnecessary financial harm. Before Wednesday’s decision, the premiers of Ontario, British Columbia, and Newfoundland and Labrador all urged Macklem to cease raising rates.

With many central banks globally nearing or at their terminal point for rates, Wednesday’s decision suggests Canada’s six-member panel may soon transition the debate to how long they need to hold instead of how restrictive policy should be.

On Tuesday, the Reserve Bank of Australia also kept its key interest rate unchanged and maintained a tightening bias. Consecutive pauses in that country imply a higher hurdle for any further hikes and suggest a surprise shift in economic data will be needed to prompt additional tightening.

After its January declaration, the Bank of Canada moved to the sidelines for five months. It resumed hiking in June and July after undaunted consumers drove unexpectedly strong economic growth. But there’s ample recent evidence the central bank has now done enough to cool excess demand.

Gross domestic product contracted at a 0.2 per cent annualized rate in the second quarter, far below the bank’s estimate for a 1.5 per cent expansion. The labour market is loosening — job vacancies are falling and the unemployment rate continues to tick up — and the housing market has slowed.

“The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures,” the bank said. “This reflected a marked weakening in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country.”

But with wage growth stuck around four per cent or five per cent, and inflationary pressures remaining broad-based, policymakers are still seeing the difficulty in the last mile of returning inflation to the two per cent target. “The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.”

The bank kept the last three sentences of the rate statement the same, laying out key metrics policymakers will be monitoring, including the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour.

​The central bank’s next decision is due Oct. 25, after double releases of jobs, inflation and retail data, as well as gross domestic product numbers for July and an August estimate.

BETTER DWELLING - Canadian real estate prices have been spiraling lower, but is a change in trend around the corner? Data from the Canadian Real Estate Association(CREA) shows that the price of a typical home increased in February. The national composite’s benchmark price had not moved higher since rate hikes began nearly a year ago. One increase is not a trend, but it can be a sign that buyers see the end of monetary policy’s influence on prices.

Canadian Real Estate Prices Climbed $7,000 In February
Canadian real estate prices changed course last month, recording the first increase in nearly a year. The composite benchmark rose 1.0% (+$7,100) to $715,400 in February. Despite the gain, prices remain 15.8% (-$133,900) lower than the same month last year. Home prices haven’t seen an increase in 11 months, which is sure to catch anyone’s eye that notices the shift.

Annual Growth Shows The Largest 12-Month Contraction On RecordWatchers of the annual growth rate likely missed the move due to a base-effect skew. February’s 12-month change for the benchmark was 3 points lower than the month before. Despite prices rising in the month, it failed to keep up with the monster move from the previous year. This produced the largest drop for the annual growth rate ever recorded, even with rising prices.

​Shifting Buyer Mentality, Not Inventory Is Driving This TrendThere must be a shortage of inventory? Not exactly, conditions were loosened last month. The Sales to New Listings Ratio (SNLR), which is the industry’s preferred measure of inventory absorption, fell to 56.7% in February, one point lower than January and 20 points lower than last year. This ratio is firmly within a “balanced” market range, meaning it is priced correctly for the level of demand. Essentially, sales fell a lot faster than inventory, helping to relieve pressure.

If it’s not tighter inventory, what’s pushing prices higher? As mentioned with Toronto’s recent numbers, a change in sentiment is the driver. The Bank of Canada (BoC) rate “pause” in January was read as the peak for interest rates. It was reinforced by the Governor partially attributing the pause to high household debt, which doesn’t just disappear immediately. By revealing they’re in a pinch, the market read that as the inability to keep up. 
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The current bank run crisis in the US is likely to only reinforce this sentiment. Though the risk of low rates sparking demand and thus inflation, also remains a risk in the other direction. No one planned on double digit inflation during the early 80s, it was sparked in part by the premature easing of policy. ​

ISMAEL SHAKIR (REUTERS) OTTAWA — The Bank of Canada will hold its key policy rate at the current level of 4.5 per cent until the end of this year and will start cutting rates in January 2024, Canada’s independent budgetary watchdog forecast on Thursday.

The central bank has raised rates at a record pace over the past year to tame inflation that hit a four-decade high of 8.1 per cent in June.

After its last hike in January, the Bank of Canada became the first major central bank fighting global inflation to say it would likely “pause” further moves as long as prices continue to come down as it has forecast.

“We expect the Bank of Canada to maintain its ‘pause’ through to the end of this year,” Parliamentary Budget Officer (PBO) Yves Giroux said in a report. “With CPI inflation on track to return to its two per cent target, we then expect the bank to start lowering its policy rate early next year.”
Canada’s budgetary watchdog said it expects interest rates to fall to 2.5 per cent by December 2024.
While money markets still expect that the central bank will keep its benchmark rate unchanged at next week’s policy announcement, they are pricing in additional tightening later in the year.


Canada’s economy will stagnate this year as tighter monetary policy takes hold, the PBO projected.
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“Following a stronger-than-expected performance in the second half of last year, we project the Canadian economy to effectively stagnate over the course of this year,” Giroux said.


Economic data have been mixed since the central bank signalled the pause, with a blowout jobs report in January showing continued labour market tightness, while inflation and GDP data have been more muted.


(Reporting by Ismail Shakil in Ottawa; Additional reporting by Fergal Smith; Editing by Mark Porter)