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Bank of Canada to hold its key interest rate at 5% — as predicted by 93% of analysts

Posted: 6 September 2023 10:16 am

The Bank of Canada will hold its benchmark interest rate at 5% — still the highest rate since 2001.

This move was expected — with 93% of economists, analysts and professors polled in the Finder: BoC Interest Rate report, indicating that the Bank would pause on further rate hikes during the September announcement.

“The Bank has moved aggressively in the last 20 months to increase interest rates from record lows to 20-year highs,” explains Moshe Lander, Senior Lecturer in Economics at Concordia University. “They need to give the economy a chance to absorb fully their actions and a six-week pause will not make a major difference in its fight against inflation.”

Finder: Bank of Canada Interest Rate Forecast Report

Key findings

  • 93% — Predict the Bank of Canada will hold its key interest rate on Sept 6, 2023
  • 2 out of 3 — Believe the best course of action is to hold this key interest rate
  • 20% — Believe the best course of action is to increase the key interest rate by 25 bps
  • 80% — Expect further increases to the cost of living (over the next few months)
  • 60% — Expect an increase in household debt (over the next few months)

The Bank of Canada won’t hike rates in September, as the costs and benefits of another rate hike are too closely aligned, explained Angelo Melino, Professor of Economics at the University of Toronto. “Inflation remains stubborn, the economy is slowing and the Bank will probably wait until October when it has a better idea of the impact [of past rate changes and] more slack in the labour market [will have] on inflation.”

Lars Osberg, Professor of Economics at Dalhousie University agreed with the Bank’s position. “A wait and see [approach by the BoC] is reasonable since the last [Consumer Price Index] CPI numbers were ambiguous.”

Douglas Porter, Chief Economist for BMO Capital Markets and Avery Shenfeld, Managing Director and Chief Economist of CIBC Capital Markets, both believe the Bank’s past rate hikes have already achieved the economic slowdown sought by the Bank.

“The back-up in the unemployment rate and the weak Q2 GDP are plenty of evidence that past rate hikes are biting,” explains Porter. While Shenfeld points out that “there are enough signs that growth is slowing and labour market is increasing, [and this] suggests that current interest rates are high enough to bring inflation down, over time.”

However, today’s announcement of a rate hold does not mean the bank is confident the nation’s economy is on track. “Some indicators could support higher rates — like the increase in inflation, persistence in inflation and high wage growth,” explains Charles St-Arnaud, Chief Economist for Alberta Central. “[Still] growth is slowing to a crawl and some slack is gradually appear in the labour market,” making a rate hold the best course of action, at this point in time.

For more on expert insights, please see the full Finder: Bank of Canada report.

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