Rate hikes may not be over: Bank of Canada

September 18, 2023



The Bank of Canada (BoC) did not raise interest rates during its September 6, 2023, meeting but has warned it is willing to do so if inflation rears its head.
The rate hold left the overnight target rate at 5 per cent and prime rate at a 22-year high of 7.20 per cent.
In its accompanying statement, BoC said it made the decision due to “recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy.”
However, BoC added it “remains concerned about the persistence of underlying inflationary pressures and is prepared to increase the policy interest rate further if needed.”
BoC acknowledged inflation expectations remain a concern given there’s been “little downward momentum in underlying inflation.”
Economists say the Bank of Canada is trying to avoid a repeat of earlier this spring when its rate pauses in March and April led to renewed buying activity and a premature assumption by borrowers that rates had reached their peak.
That rally was stalled by subsequent 0.25 per cent rate increases in June and July.
“Policymakers clearly do not want a repeat of earlier this year, when a short-lived pause sparked thoughts of eventual rate cuts, in turn firing up housing,” wrote Douglas Porter, BMO’s chief economist. “A fair question to pose now that the Bank has held steady is will the return to pause cause the housing sector to reignite, as it so vividly did this past spring?”