The Bank of Canada held its key overnight interest rate at five per cent for the fourth consecutive time, as inflation remains higher than desired and economic growth has not slowed enough to warrant a cut.
“The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation,” the central bank said in a Jan. 24 statement.
The central bank did, however, signal a shift in discussions.
“With overall demand in the economy no longer running ahead of supply, 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,” Bank of Canada governor Tiff Macklem said during a Jan. 24 news conference.
However, he said this doesn’t mean the central bank has ruled out rate increases, if necessary.
“We may still need to raise rates,” Macklem said, echoing caution that has characterized previous hold decisions.
Nevertheless, many economists expect the Bank of Canada will begin to trim interest rates later this year after a record run-up since early 2022, given Canada’s tepid economy and the central bank’s own outlook.
In response to questions from media about the timing of a potential cut, which market signals and some economists anticipate will come as early as April or June, Macklem declined to spell out a timeline.
“In the months ahead, we will continue to see this push and pull” between economic indicators, he said.
Moreover, he said rate hikes this past summer are still working their way through the system.
“We need to give these higher rates time to do their work,” Macklem said.
Total CPI inflation stood at 3.4 per cent in December 2023, above the central bank’s target rate of two per cent, with shelter costs the biggest contributor to above-target inflation.
One metric Macklem said could cause rates to be raised again, rather than lowered, is an unexpected surge in house prices. This is not in the Bank of Canada’s base case projection for inflation and growth in the Canadian economy, he said.
The decision to hold rates on Jan. 24 drew a forecast of more activity in the real estate market from Christopher Alexander, president of RE/MAX Canada, who called the Bank’s decision “a welcomed one” for many Canadian homebuyers.
“We might see a boost in housing market activity, especially for those that have been taking a ‘wait and see’ approach and are waiting for the right time to re-enter the market,” Alexander said. “This could very likely result in an active first quarter of 2024 and a strong spring market, reminiscent of what we experienced at the top of the pandemic in early 2020.”
James Orlando, senior economist at Toronto-Dominion Bank, said while the central bank is not ready to set timing on a rate cut, markets are signalling it happening in either April or June.
We echo this sentiment,” he said in a note after the Bank’s announcement.
“(With) the realization that the BoC can’t set policy just based on elevated shelter inflation, it is clear that the central bank is getting ready to signal a rate cut in the coming months,” he wrote.
Part of the reason so many are expecting a cut is Canada’s tepid economic growth. And while the global economic picture is brighter, Bank of Canada officials have cited ongoing geopolitical risks, with wars in the Middle East and Russia-Ukraine as well as shipping disruptions in the Red Sea, as a concern.
“Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted.”
But while labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs are being created at a slower rate than population growth, wages are still rising by around four to five per cent.
The Bank of Canada expects economic growth to strengthen gradually around the middle of 2024.
“In the second half of 2024, household spending will likely pick up and exports and business investment should get a boost from recovering foreign demand,” the central bank said in the statement, adding that spending by governments will contribute materially to growth through the year.
As for global growth, the Canada’s central bank forecasts global GDP growth of 2.5 per cent in 2024 and 2.75 per cent in 2025.
“With softer growth this year, inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025,” the Bank of Canada said in its Jan. 24 statement.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
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