Bank of Canada preview: Another rate hold widely expected


Despite stronger-than-expected job gains in March, the Bank of Canada is widely expected to keep rates on hold at this week’s rate decision meeting.

This would mark the second meeting with the Bank leaving its overnight target rate unchanged at 4.50%.

Even though employment data surprised to the upside once again in March, which kept the country’s unemployment rate unchanged at 5%, observers say the Bank will need more time to assess how the economy responds to the eight rate hikes—or 425 basis points of rate tightening—it has delivered over the past year.

“On balance, the economy looks to be evolving broadly in line with January’s expectations (growth/labour markets a bit stronger, inflation a bit weaker), which was the criteria for maintaining a pause,” noted National Bank economist Taylor Schleich.

Wednesday’s Bank of Canada rate decision will include the Bank’s latest Monetary Policy Report (MPR), which will include the Bank’s updated second-quarter projections.

In its previous MPR, the Bank said it expects inflation to average 3.6% in 2003, which was revised down from 4.1% in its previous forecast. It also expects GDP growth of 1% in 2023, rising to 1.8% in 2024.

“Overall, we expect the Bank to convey cautious optimism that this pause can be sustained, though upside inflation risks remain the more pressing concern,” Schleich added.

On the rate statement:

  • NBC: “The Bank may not need to worry about Canadian banking system stability but there’s clearly more downside to the global/U.S. outlook in light of recent developments. Nonetheless, the BoC will likely retain a hawkish tilt by stressing it’s prepared to raise interest rates further if needed. We don’t expect any discussion of rate cuts in prepared remarks.”
  • Desjardins: “Economic growth is also not cooperating with the Bank of Canada, showing few signs that monetary policy is having its intended effect. All of this suggests that the Bank of Canada will keep the door open to further rate increases, implicitly pushing back on market pricing for rate cuts this year.”

On inflation:

  • NBC: “We’re forecasting Q2 CPI inflation at just 2.9%, which would be the lowest since Q1:2021. The Bank will unveil its Q2 projection for the first time on Wednesday and though it might not feature a 2-handle like ours, it will be close. The full year forecast could be revised lower too, as we see 2023 inflation 0.5%-pts lower than the BoC had thought three months ago.”

On GDP forecasts:

  • TD: “[Last week’s employment] report corroborates the signal we have been getting from credit/debit card spending data, and supports our forecast for Canadian GDP to come in around 2% for the first quarter of 2023. That is not the kind of growth the BoC wants to see when it is trying to ensure that inflation gets back to target. Although [March’s strong employment data] isn’t enough to get the Bank off the sidelines, the fact that nothing so far seems to be able to crack the Canadian jobs market juggernaut must be worrying.”  

On rate-cut expectations:

  • BMO: “In the wake of developments south of the border, the market is currently pricing in about 10% odds of a rate cut [in April] and almost a full one by June, even when 40 bps of tightening is being considered stateside through May…By the end of the year, there’s almost 60 bps of easing priced in. Short of the downside U.S. economic risks being realized and rippling quickly across the Canadian border, we don’t see the BoC cutting policy rates. Besides, the combination of the pause and recent steep rally in bond yields could start pulling down mortgage rates as housing sales activity is already showing signs of stabilizing…we continue to look for the BoC to stay in pause mode for the remainder of this year, before commencing rate cuts early next year.”

Looking beyond this week:

  • RBC: “The BoC is widely expected to hold the overnight rate at 4.5% at [this] week’s policy decision and we expect it to stay there for the rest of this year.”

The following are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parenthesis.

  Target Rate:
Year-end ’23
Target Rate:
Year-end ’24
Target Rate:
Year-end ’25
5-Year BoC Bond Yield:
Year-end ’23
5-Year BoC Bond Yield:
Year-end ’24
BMO 4.50% 3.50% NA 3.25% (+5 bps) 2.95%
CIBC 4.50% 3.00% NA NA NA
NBC 4.25% (+25 bps) 3.00% (-25 bps) NA 2.90% (+20 bps) 2.65% (-10 bps)
RBC 4.50% 3.00% NA 2.75% 2.55%
Scotia 4.50% (+25 bps) 3.00% NA 3.35% 3.25%
TD 4.50% (+50 bps) 2.50% (+25 bps) NA 2.90% (+20 bps) 2.60% (+25 bps)

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