The Bank of Canada is likely to hold interest rates steady on Wednesday as policymakers consider whether a slowing economy means it’s time to end its historic campaign to tighten policy.
Economists and investors expect Governor Tiff Macklem and his officials to keep the benchmark overnight rate unchanged at 5%. A pause would mark only the third time in 13 meetings that the central bank hasn’t raised borrowing costs. But most analysts think the bank is done hiking.
Failing to maintain a hawkish bias risks a repeat of January, when Macklem became the first Group of Seven central banker to declare a conditional pause. Markets quickly priced in future rate cuts and Canada’s housing market rebounded as financial conditions loosened. The labor market is loosening — job vacancies are falling and the unemployment rate continues to tick up — and the housing market has slowed.
Canada’s highly indebted households have likely burned through most of the excess savings they accumulated during the pandemic. For homebuyers or borrowers, there are few places to turn for relief. Five-year yields have risen around 95 basis points since late January, a substantial dent in purchasing power for mortgage holders renewing at fixed rates. Canadians with variable-rate mortgages are already feeling squeezed.
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