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Residential Mortgage Commentary - The next move by the Bank of Canada

  • First National Financial LP

The Bank of Canada has offered only the slightest hint about what it plans to do next.  In the statement that accompanied last week’s 50 basis-point increase in the Policy Rate the Bank said it “will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target.”

That is a softening of the language on pending rate hikes that was used in previous statements, but it gives the Bank some wiggle room to continue with increases or stand pat and wait to see what the economic data shows. 

At the same time the Bank wanted to be clear that it has not lost sight of its goal of taming inflation.

“We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians,” the Bank said.

That tone was reinforced by the Bank’s Deputy Governor Sharon Kozicki, in a speech one day after the rate announcement.

“If we are surprised on the upside, we are still prepared to be forceful.”

“But we recognize that we have raised interest rates rapidly and that their effects are working their way through the economy,” Kozicki said.

Inflation is running at nearly 7% in Canada and there are early signs it is moderating.  The Bank’s trend-setting overnight rate is now at 4.25%.  The next rate announcement is set for January 25, 2023.