OTTAWA—While the Bank of Canada likely raised interest rates more than consensus expectations, it clearly signalled that the Dec. 7 increase of 50 basis points—half a percentage point—may be the last of its current rate-hiking cycle, according to analysts.
The central bank’s policy interest rate is now 4.25 percent, but language about future interest rate increases has been tweaked from October’s statement to suggest less certainty about the need for more rate hikes.
“Governing Council will be considering whether the policy interest rate needs to rise further,” said the BoC. This is changed from its Oct. 26 statement, which said that “Governing Council expects that the policy interest rate will need to rise further.”
“It certainly is a definite softening of their tone,” Steve Ambler, economics professor at Université du Québec à Montréal (retired), told The Epoch Times.
Tony Stillo, director of Canada Economics for Oxford Economics, says the bank’s policy rate has hit its peak for this rate-hiking cycle.
“Today’s statement marks a clear shift in the bank’s communication,” he said in a Dec. 7 note.
RBC senior economist Josh Nye said, “That clearly opens the door to a pause as soon as the next meeting in January, and in our view frames that decision as between 0 and 25 bps.”
Nye said the consensus was almost evenly split between a 25-basis-point and a 50-basis-point increase, though pricing in financial markets was leaning toward 25.
Positives and Negatives
The biggest impact of the BoC’s rate hikes since March, amounting to a total of 4 percent, has arguably been in the housing market, and concerns of an economic recession have been mounting.
Mortgage renewal is a concern for many Canadians who face the prospects of much higher fixed rates than they saw five years ago. But Ambler says variable-rate mortgages may warrant consideration.
“Not only is the tightening cycle maybe at an end, maybe the bank will be able to start cutting rates a little bit quicker than people are expecting,” Ambler said.
“if I had to renew at this point, I would probably take variable over fixed-rate.”
