Rate Pause Comes As No Surprise

The Bank of Canada (BoC) decision to maintain its policy rate at 4.5 per cent comes as no surprise, following the pause in March 8, says Kathrin Forrest, an equity investment specialist at Capital Group in Canada. The pause was signaled at the bank’s January 25 rate hike which was conditional on economic developments evolving broadly in line with its forecast. Still, recent economic data have been mixed. While employment has continued to surprise on the upside and ongoing solid wage growth has supported retail sales, consumer and business expectations point to easing supply pressures and moderating economic activity. Inflation has eased, but continues to be substantially above the bank’s two per cent target. While the annual inflation rate fell to 5.2 per cent in February, medium-term inflation expectations by businesses and consumers remain above the bank’s target. The bank reiterated its commitment to price stability, noting that its governing council “remains prepared to increase the policy rate further if needed to return inflation to the two per cent target.”