As expected the Bank of Canada has held its benchmark, overnight interest rate at 0.25%, and it remains committed to holding the line on that rate until the second half of next year. But Governor Tiff Macklem is signalling that change is coming.
The Bank has been sorting through a mixed bag of economic data: disappointing 2nd quarter GDP performance, better than expected August employment growth and an American recovery that has yet to truly take hold.
The Bank is also being held in place by the September 20th federal election. Central bankers are notoriously reluctant to make changes during election cycles for fear of appearing to be interfering with the process.
Nonetheless Macklem recently spelled out the Bank’s intentions in a speech to a Quebec business group. He made it clear the Bank will be rolling back its bond buying, or quantitative easing (QE), program. The slowdown is seen as a key indicator that interest rates will be going up. Macklem didn’t lay out a date but, as mentioned earlier, indicated the Bank is still looking at the second half of 2022 before it makes any moves. Macklem also revealed that it is likely rates will start to rise before the QE program is fully unwound.
Now, many market watchers are looking to the October 27th rate setting and the accompanying Monetary Policy Report for some movement. The election will be over, the Bank will have another quarter of GDP data and another month of employment numbers to inform its decisions.