Posthaste: Bank of Canada signals interest rate relief is coming, but brace for a wait
The Bank of Canada threw in a few surprises into what most thought would be a predictable interest rate hold yesterday.
The decision to keep interest rates at 5 per cent was widely expected, but the big change in the policy statement was the dropping of the hiking bias, say economists.
“The Bank of Canada isn’t ready, willing or able to bring interest rate relief just yet, but dangled some hints that lower rates are on the way later this year,” wrote CIBC chief economist Avery Shenfeld.
The statement dropped the line that the Bank “remains prepared to raise the policy rate further if needed,” seen in previous decisions, instead saying they remained concerned about sticky core inflation.
But what really caught observers’ attention was when Bank governor Tiff Macklem said during the news conference that the “governing council’s discussion of monetary policy is shifting from whether our policy rate is restrictive enough to restore price stability to how long to stay at the current level.”
As mortgage analyst Robert McLister put it: “The Bank of Canada didn’t just put rate hikes on the back burner today; it unplugged the stove.”
Another thing worth noting is the Bank’s acknowledgement that shelter costs — mortgage interest and rents — are playing an oversized role in driving inflation and its role in pushing up both.
“Increases in interest rates support rental price inflation by reducing the affordability of housing, which keeps households in the rental market for longer,” it said in the monetary policy report. “Interest rate increases also lead to higher debt costs for property owners, which can be passed on to tenants.”
Capital Economics’ Stephen Brown said that new focus suggests that the Bank is willing to start looking
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