No rate changes from the Bank of Canada. What should we expect now?

On Wednesday, the Bank of Canada kept its key lending rate unchanged at 4.5% following eight increases in a row. Experts believe this pause in the rate hiking cycle may last for the rest of this year, as the BoC is assessing the economy’s reaction to the previous changes.

According to economists polled by Bloomberg, the coming months will show how economic indicators (especially, inflation and the job market) respond to the drastic rate increases which have raised the Bank’s overnight rate from 0.25% in March to the current level.

“The main question now is how strongly Canada’s indebted economy reacts after months of aggressive monetary tightening,” – noted Marc Desormeaux, principal economist at Desjardins.

Leslie Preston, senior economist at TD Economics, says the BoC is in a wait-and-see position, as the cumulative effect of the previous changes reveals itself.

CIBC chief economist Avery Shenfeld shares the opinion that the central bank may stop changing the rate this year.

The BoC pointed out that the national labour market remains tight and declining inflation of 5.9% still exceeds the 2% target significantly.

The no rate change decision provides certain relief to borrowers, says Preston. However, it doesn’t reduce the economic pain from already higher rates.

Canada’s real estate market has already started reacting to the higher interest rates, and Preston expects it to continue as more people’s fixed-rate mortgages are up for renewal soon.

“That influence will weigh on household spending for a few years,” – she added. People will also face higher borrowing costs in case of financing other major purchases, e.g. cars and appliances.

Canadians will “feel the hit” of rates in their mortgages, wages, and job prospects this year, noted Shenfeld, but they can also expect certain relief while shopping for goods and services in case inflation keeps going down.

In Shenfeld’s opinion, the central bank’s tone about its future trajectory will probably become clearer in the coming months.

“Possibly by this summer, the Bank will be more definitive in its projection that they have stopped raising the rate,” – he said, forecasting no rate changes for 2023, if the economy develops as planned.

Preston says rate cuts may begin by the fourth quarter of 2023. Meanwhile, Shenfeld doesn’t expect it until the next year.

The Bank’s next rate meeting is scheduled for April 12.