Will the Bank of Canada keep its overnight rate unchanged this Wednesday?

The central bank is widely expected to keep its overnight rate at 4.5% this Wednesday, as inflation keeps slowing down, even in spite of other numbers pointing to a still overheated economy.

This week’s announcement will be accompanied by an updated forecast for economic growth and inflation.

According to BMO chief economist Douglas Porter, while the national economy is still showing faster-than-expected growth, lower-than-anticipated inflation will force the Bank of Canada to keep its key lending rate unchanged.

“If we combine all these results together, it will definitely look like the BoC is likely to hold rates steady for now,” – Porter noted.

For several months already, the economic data that the Bank relies on in terms of interest rates has been sending mixed signals about the national economy.

This year, economic growth and job numbers have been showing better than expected results, even as the central bank’s key lending rate reaches its highest level since 2007.

CIBC executive director of economics Karyne Charbonneau says a closer review of the economic performance will show that there may not be too many reasons to worry.

“Partially, the strength that we see in GDP comes from the unwinding of some supply disruptions, and it’s good for inflation,” – Charbonneau noted.

As the sharp prices increase mostly occurred in the first half of 2022, Canada’s inflation rate is expected to go down significantly in 2023. Most economists expect a decline to almost 3% by the middle of this year.

As long as inflation keeps falling as expected, the BoC doesn’t plan to raise its overnight rate. It announced a conditional pause in its rate hiking cycle, although it didn’t rule out the possibility of more increases if it’s necessary.

The Bank of Canada is cautiously optimistic that its aggressive rate rises between March 2022 and January 2023 will be tough enough to restrain inflation.

The full effect of higher interest rates can take up to two years, so it’s expected to keep broadening out in the economy.