The Bank of Canada announced today that it is holding its key interest rate steady for the first time in a year. 

The central bank has decided to hold its key rate at 4.5% while reiterating it is taking a wait-and-see approach with respect to monetary policy.

“Quantitative tightening is complementing this restrictive stance. Governing Council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return inflation to the 2% target,” the central bank stated in a press release.

The consumer price index (CPI) for January came in at 5.9%, well above the central bank’s target of 2%. 

While still too high, CPI is coming down largely due to lower energy prices. In the United States and across the Atlantic in Europe, near-term outlooks for growth and inflation are higher than expected for January. Specifically, labour markets remain tight and elevated core inflation continues to persist.

“Growth in China is rebounding in the first quarter. Commodity prices have evolved roughly in line with the Bank’s expectations, but the strength of China’s recovery and the impact of Russia’s war in Ukraine remain key sources of upside risk.”

Canada’s labour market remains very tight and employment growth has been surprisingly strong as the unemployment rate remains at historic lows. Presently, wages continue to grow from 4% to 5% while overall productivity has declined in recent quarters.

While energy prices have come down, price increases for food and shelter remain high, causing continued hardship for Canadians.

“With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease. This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.”

The central bank remains adamant about returning inflation to its 2% target and affirms that the latest data is in line with its expectation that inflation will come down to around 3% in the middle of 2023.

The next scheduled date for announcing the target for the overnight rate is April 12, 2023.

The guidance we give our clients remains the same. Invest in blue chip stocks and take advantage of the rising interest rate environment with some short-term fixed-income securities such as bonds and Guaranteed Investment Certificates.

As always, if you have any questions about today’s Market Update, you can call us at 604-643-0101 or email cashgroup@cgf.com.