Rate Hold Continues, But Cuts Are Coming Soon! 

As expected, the Bank of Canada held the overnight rate steady. The Bank wants more confidence inflation is in check and no longer a risk before making any cuts. A relatively good start to 2024 for the jobs market gives the Bank some breathing room to wait and ensure inflation is getting back under control before pivoting downward.

According to Macklem, the Bank aims to balance the need to ease monetary policy without prolonging its restrictiveness, while also safeguarding the strides made in curbing inflation.

We are heading in the right direction. Headline inflation fell to 2.9% in January, much lower than expectations of 3.3% and down from December’s 3.4% pace. We did see a higher-than-expected GDP growth rate of 1% in Q4, against expectations that growth would be flat. While GDP data modestly exceeded the Central Bank’s projections, the details showed that the domestic economy is anything but healthy and struggling under the weight of high-interest rates.

Leading up to Wednesday’s decision, traders in overnight swaps were anticipating that the bank would initiate rate reductions by the July meeting. Economists, however, now view June as the more probable start for the easing cycle. The next Bank of Canada rate announcement is April 10th, 2024, where there is an outside chance of a cut or more likely a hint of what’s to come in June. 

Recent data has caused the major Banks to slightly revise the projections for interest rate cuts. Still very good news but slightly less aggressive.

Source: Canadian Mortgage Trends

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