Bank Of Canada Signals Pause In Rate Hikes

The Bank of Canada has signalled that it plans to pause interest rate increases while it evaluates their impact on the economy.

As was widely expected, Canada’s central bank raised interest rates for an eighth consecutive time, lifting its trendsetting overnight lending rate by 25-basis points to 4.50%.

The Bank of Canada’s overnight interest rate has gone from 0.25% to 4.50% in less than a year and is now at its highest level in 15 years.

In delivering the latest rate increase, the Bank of Canada gave its clearest signal yet that it now plans to take a break and assess the economic impact of its monetary tightening.

“If economic developments evolve broadly in line with (our) outlook, Governing Council expects to hold the policy rate at its current level,” the bank said in a written statement.

Canada is the first country among Group of Seven (G7) leading industrialized nations to pivot away from interest rate increases.

In its quarterly Monetary Policy Report that was published alongside the latest interest rate decision, the Bank of Canada said that the economy is still strong, but that growth is likely to slow in coming months.

The central bank said that it now expects inflation in Canada to decline to 3% by the middle of this year and return to its 2% target in 2024. Inflation in Canada stood at 6.3% in December.

Still, the Bank of Canada cautioned that more rate hikes could be needed if economic data runs counter to its forecasts.

The bank said in its written statement that it “is prepared to increase the policy rate further if needed to return inflation to the two per cent target.”

Swaps trading indicates that markets now expect the Bank of Canada’s next move on interest rates could be a cut as early as October of this year.

The Canadian dollar fell as low as $1.3428 per U.S. dollar after the latest rate hike was announced.