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Bank of Canada interest rate: What happens next?

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The Bank of Canada announced Wednesday it would hold its key overnight rate at 4.5 per cent after eight consecutive interest rate increases – and experts said the pause could last throughout 2023 as the bank watches the economy responds to its policy moves so far.

Economists told BNNBloomberg.ca the months ahead will reveal how economic indicators – in particular, inflation and the labour market — react to the dramatic series of hikes that began last March at a pandemic-low interest rate of 0.25 per cent.

“The question now is how strongly Canada’s debt-saddled economy responds following months of aggressive monetary tightening,” Marc Desormeaux, principal economist of Canadian economics at Desjardins, told BNNBloomberg.ca in a Wednesday phone interview.

Leslie Preston, senior economist at TD Economics, said in a Wednesday phone interview that the Bank of Canada is in a “wait and see period” as the cumulative effect of the last year of monetary policy sets in.

CIBC chief economist Avery Shenfeld echoed the idea that the bank could take a hands-off approach to interest rate adjustments this year.

“What likely comes next for the Bank of Canada is a very long nap, in the sense that interest rates are unlikely to change over the balance of 2023 if the economy performs as we expect,” he said.

KEY DATA TO COME

The Bank of Canada (BoC) highlighted the still-tight labour market in its Wednesday statement on the rate decision, and referenced falling inflation that at 5.9 per cent still sits well above the central bank’s two per cent target.

Statistics Canada data on February’s employment numbers and inflation are expected in the coming weeks, and those numbers will be “relatively crucial in terms of where we go next,” said Doug Porter, chief economist of BMO Financial Group.

Preston said she will be watching closely for a softening in the jobs numbers relative to January’s strong labour market report.

“For inflation to continue to come down, we’re going to need to see some softening in the labour market,” she said.

A Thursday speech by deputy governor Carolyn Rogers could give further clues about the thinking behind the BoC’s decision to hold, Porter added, while an upcoming summary of the bank’s deliberations has potential to shed further light on the policymaking process.

IMPACT ON CANADIANS

The fact that rates didn’t rise again on Wednesday offers “some relief” to borrowers, said Preston – but a pause doesn’t lessen the economic pain from higher rates that is already setting in.

Canada’s housing market has already started absorbing the higher interest rates, and Preston said that will continue as more people’s fixed-rate mortgages come up for renewal.

“That impact, as more and more people renew every quarter, is going to weigh on household spending for a couple of years,” she said.

People will also notice higher borrowing costs as they seek to finance other major purchases like cars and appliances, she said.

Desmoreaux said he’s anticipating a “short and shallow recession” in Canada this year as the economy slows down in response to the rate increases – which will in turn weigh on workers as jobs become more scarce.

Canadians will “feel the pinch” of rates in their mortgages, wages and job prospects in 2023, said Shenfeld, but people can also expect some relief while shopping for goods and services if inflation continues to come down.

“There’s some economic pain, particularly for those with big mortgages that are renewing at higher rates, but there is a broader benefit to consumers from not facing ever-escalating prices,” he said.

WHEN WILL THE CENTRAL BANK CUT RATES?

The central bank stressed on Wednesday that it is “prepared to increase the policy rate further” to get inflation down to its two per cent target.

Economists who spoke with BNNBloomberg.ca said they largely expect the BoC to leave its key interest rate at 4.5 per cent in the year ahead, even as it left the door open to more tightening.

Shenfeld said he expects the BoC’s language about its future direction will likely become clearer in the coming months.

“At some point, likely by this summer, the bank will be more definitive in its projection that they’re done with rate hikes,” he said, predicting that the key interest rate will remain unchanged through 2023 if the economy progresses as expected.

Preston and Desormeaux predicted rate cuts could start by the fourth quarter of this year, while Shenfeld and Porter said they think cuts are more likely to happen in 2024.

The BoC said Wednesday that it expects inflation could reach three per cent by the middle of this year, but economists said more rate hikes could be on the table if inflation rears its head again.

Porter said it would take a couple of months of disappointing inflation data or “indications that that the economy is still barreling forward” to prompt more tightening from the central bank – but the move clearly has not been ruled out.

“I don’t think the bank is in any way committed to staying on the sidelines,” he said. “They’re pretty clear that if they’re going to move on rates, it’s going to be up, not down in the year ahead.”

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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