Bank of Canada Holds Key Rate At 5%, Signals It's Done With Hikes

• The Bank of Canada has maintained its policy rate at 5.0% for the fourth consecutive meeting. It explicitly stated that further rate increases may not be necessary if the economy aligns with its forecasts.
• Policymakers, led by Governor Tiff Macklem, expressed concerns about stalled economic growth and foresee a slow near-term recovery. The bank's communication signals a shift towards discussions on how long to maintain the current restrictive policy stance, potentially leaving room for rate cuts. The Canadian dollar depreciated post-announcement, and bond yields decreased.
• The bank acknowledges the need to balance risks but removed previous statements indicating a readiness to hike rates. Inflation concerns persist, but officials emphasized the importance of sustained easing in core inflation.
• The Bank of Canada revised its economic growth projection to 0.8% for the current year, highlighting a modest excess supply in the economy.
• Inflation is expected to remain close to 3.0% in the first half of 2024, gradually declining to around 2.5% by year-end, with a target of 2.0% in the following year. However, risks include housing price increases impacting inflation.

(Source: Bloomberg)