Countdown to rate cuts has begun: What economists say about Bank of Canada's hold
The Bank of Canada is holding its benchmark lending rate at five per cent, but warned that it was prepared to hike rates again if necessary, adding a hawkish overtone — tinted with a “dovish undertone” — to its third consecutive hold.
“(The bank) wasn’t yet willing to drop its warning that it could raise rates again if needed, which would definitively mark a turning point,” said Avery Shenfeld, chief economist with Canadian Imperial Bank of Commerce, in note on the decision.
The central bank, nevertheless, acknowledged that it has notched some wins from its unprecedented rate hiking cycle, which has now plateaued at five per cent after rising from 0.25 per cent in March 2022.
Inflation is cooling for a growing range of goods and services, the bank said, adding that economy “is no longer in excess demand” — a shift from the previous statement at the end of October, in which it indicated the economy was “approaching balance,” Shenfeld said.
The bank also noted that the employment picture is loosening with job creation no longer able to keep pace with the increasing population, leading to a rising unemployment rate. Job vacancies have fallen close to where they were prior to the pandemic.
There remain areas of concern, the bank said including sticky core inflation of approximately 3.5 to four per cent — above the bank’s target of two per cent — and wage growth in the range of four to five per cent.
“Given today’s report that productivity fell for a sixth consecutive quarter in Q3, such wage growth is now generating unit labour cost increases of six per cent year over year, far too much cost pressure for comfort,” said Douglas Porter, chief economist at Bank of Montreal.
The central bank also cited “corporate pricing
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