A weak economy and rising oil keep the bank on hold, with its next move still up for grabs
The Bank of Canada "can't have their cake and eat it too," one economist said, after it held its overnight rate at 2.25 percent on Wednesday for a fifth straight time.
The market is now testing how long that balancing act holds.
Money markets are still pricing a 25-basis-point hike before year-end, according to Reuters, even as more than 80 percent of the 34 economists it polled expect a hold through 2026.
Tsvetoslav Tsonev, portfolio manager at Aviva Investors, told Wealth Professional the bank "is signalling patience, not comfort."
Investors should be wary of assuming the next move is a hike just because other G10 central banks "are sounding more hawkish," he cautioned.
Etienne Bordeleau-Labrecque, vice-president and portfolio manager at Ninepoint Partners, said a hike is hard to justify with housing so soft.
Housing makes up a third of the CPI basket.
The better path, he said to Wealth Professional, is to "sound hawkish and be ready to act," anchoring inflation expectations rather than hiking into a recession.
Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, told WP the bank "can't have their cake and eat it too," adding that "a lower policy rate should not be ruled out entirely."
Naoum Tabet, fixed-income investment director at Capital Group, also told WP he saw "no immediate case for raising or lowering interest rates."
Andrew Grantham of CIBC Capital Markets called it a “very patient” bank with “plenty of time to wait and see,” according to the Financial Post, though he noted any hikes would run larger than cuts since Macklem used the word “consecutive.”
KPMG’s Ali Jaffery read the tone as “dovish” and Central 1’s Bryan Yu said the bank is in “no rush” to hike, both told the FP, while Oxford Economics’ Michael Davenport said the market’s call for a hike “misses the mark,” as reported by BNN Bloomberg.
Grantham, Jaffery, and Davenport all expect rates to hold through 2026.
The bank itself framed the hold around competing risks.
The bank's rate announcement put core inflation at around 2 percent.
It cited "limited evidence of broad-based pass-through of higher energy prices to other consumer prices."
Headline CPI, meanwhile, hit 2.8 percent in April and is expected to stay near 3 percent before easing toward 2 percent.
Governor Tiff Macklem said GDP, which slipped 0.1 percent in the first quarter for a second straight quarterly decline, signals a soft economy rather than a downturn.
“Based on the data we’ve seen to date, the economy is weak, but it is not clearly in recession,” he said, according to Reuters.
He cast the choice as a dilemma, since raising rates could slow growth further while easing could let inflation take hold, and said the hold “balances those risks.”
Bond traders took the patient read.
Government bonds rallied, Bloomberg reported. The two-year yield fell to 2.836 percent.
Royce Mendes, head of macro strategy at Desjardins Securities, said “markets aren’t taking the bait this time.”
According to Reuters, the Canadian dollar firmed 0.3 percent to $1.3903 against the greenback.
For clients eyeing mortgages, the hold changes little.
Anyone waiting for fixed rates to fall is "better off betting on Canada to win the World Cup," Clay Jarvis, NerdWallet Canada's mortgage and finance expert, told Wealth Professional, since fixed pricing tracks bond yields.
Kevin Fettig, president of CMI Financial, told WP that high costs are pushing some borrowers into private mortgages as a bridge.
Liza Akhvledziani, CEO and co-founder of Chexy, emailed WP about a renewal wall of borrowers resetting higher, urging them to "stop waiting for a rate cut to save you."
The bank's next decision comes July 15.
