First National Financial LP

Residential Market Commentary - Taking a pause, but for how long?

  • First National Financial LP

The Bank of Canada has stepped to the sidelines bringing an end to a 12-month string of interest rate increases that pushed its trend-setting Policy Rate from 0.25% to 4.50%.  The question now is: How long will the Bank stay on the sidelines?

Right now, there are plenty of market watchers who expect the BoC will hold the line on rates for the rest of the year.  But the Bank itself has adopted a more hawkish tone since last week’s decision to take a pause.

During a speech to business leaders in Winnipeg, the day after the setting, the Bank’s Deputy Governor Caroline Rogers reminded her audience the pause remains “conditional” on economic data. 

“If economic developments unfold as we projected and inflation comes down as quickly as we forecast in the January Monetary Policy Report, then we shouldn’t need to raise rates further.  But if evidence accumulates suggesting inflation may not decline in line with our forecast, we’re prepared to do more,” Rogers said.

Inflation is currently running at 5.9%, well above the Bank’s 2.0% target, and inflationary pressures remain high.  The labour market remains strong, consumers are still spending, grocery prices are still increasing rapidly, and the U.S. central bank has made it clear it will continue to raise rates, as needed, in its fight against inflation. 

Higher U.S. rates will likely push down the value of the Loonie, effectively pushing up the cost of goods imported from the States.

The Bank of Canada’s next rate setting is scheduled for April 12th.