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Bank of Canada Maintains Rate at 5%, Signaling Potential Conclusion of Hike Cycle

The Bank of Canada has held its policy rate steady at 5% for the fourth consecutive meeting. Notably, this is the first time the bank has indicated that it doesn't foresee a need for additional rate hikes if the economy evolves according to their projections.

This decision is in harmony with market anticipations and mirrors the bank's observation that economic growth has reached a plateau. It's expected that the modest pace of economic expansion will facilitate the reduction of inflation to the bank's target of 2% by the following year. Governor Macklem highlighted the unanimous agreement on this decision and suggested that future deliberations would likely revolve around how long the policy rate should remain at 5%.

The bank's tempered tone suggests a confidence among officials that the significant rate increases over the past two years, totaling 475 basis points, are sufficient to temper inflation. This perspective opens up the possibility for rate decreases in the months to come.

Our Take: In line with the actions of other central banks, the Bank of Canada has made a pivotal shift in its rate policy. This move comes in response to considerable improvements in inflation control and the prevailing uncertainties surrounding economic growth. The key questions now are not if, but rather when the cycle of rate reductions will commence and the extent of these cuts throughout 2024.


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