First National Financial LP

Residential Market Commentary – Hiking rates without an increase

  • First National Financial LP

The Bank of Canada has, once again, held its trendsetting interest rate 0.25%.  But it has stepped off the sidelines.

Expectations of a rate hike were high heading into the January 26th announcement.  Calls for an increase have been loud as inflation has jumped to generationally high levels.  Business and consumers are pushing for action to bring it back under control.

The Bank, however, appears to have opted for a compromise.  It is holding the rate at its record low while the rhetoric has been given a sharp increase.  Bank of Canada Governor Tiff Macklem has made his most direct statement, yet, on the matter.

“Canadians can be assured that we will use our monetary policy tools to control inflation,” Macklem said during the January announcement. “Canadians should expect a rising path for interest rates.”

Well known bank economist Benjamin Tal calls it a “PR story.”

 “There are two opposing forces: one is that you want to maintain the credibility of the Bank of Canada,” Tal said in an interview with Mortgage Broker News.  “At the same time, you don’t want to be seen as insensitive to the suffering of people during the Omicron wave.  So, what do you do?  You basically raise rates without raising rates.”

Popular American financial expert John Mauldin has called this tactic, “talk tough and drag your feet.”

COVID-19 remains the key variable in the BoC’s planning, but it now appears increasingly likely the Bank will pick up its feet and step off the sidelines with a rate hike in its next announcement on March 2nd.