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3 reasons the Bank of Canada may be set to pause interest rate hikes

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It’s been almost exactly a year since the Bank of Canada began aggressively raising its main overnight lending rate. Since then, Canadian families have struggled to pay off mounting debts. Borrowing costs have risen by a staggering 425 basis points over the last 12 months.

But the days of relentless rate hikes may be coming to an end. On Wednesday, the Bank of Canada will release its latest interest rate policy. Many people expect the promise to hit the pause button to work.

James Laird, CEO of and president of mortgage company CanWise Financial, said:

In January, the central bank raised its key rate to 4.5%, but also signaled its readiness to end a year-long string of rate hikes.

“When economic development unfolds broadly along the MPR [Monetary Policy Report] Looking ahead, the Bank of Canada said in an official statement that it expects to keep its policy rate at its current level and assess the cumulative impact of rate hikes.

This is a rather important warning.

Since the bank’s last decision on January 25th, we’ve been looking at employment numbers, GDP data, home sales figures and, of course, inflation.

Inflation has fallen sharply from its peak last summer

The consumer price index has spent much of the last few decades slumping around 1-2%. As the effects of the COVID-19 pandemic began to take hold, inflation began to rise.

At first, it was dismissed by many as simply “temporary”. However, the price never received the memo and continued to climb. The year-on-year change eventually peaked at 8.1% in June last year.

By then, central banks around the world were aggressively raising interest rates. Problems with global supply chains were converging and global oil prices were beginning to fall from the highs reached after Russia invaded Ukraine a year ago.

By last week, the CPI had slowed to an annualized rate of 5.9%. The short-term trend has slowed further.

Food prices are still too high, but economists like TD’s Leslie Preston see the overall trend clearly positive.

Preston told CBC News: “This is another step in the right direction and with inflation starting to come down, it’s reassuring to see we’re moving in the right direction.

More recently, Canadian economic growth data turned out to be weaker than expected.

Weak GDP boosts rate hike moratorium case

GDP growth stalled until the fourth quarter of last year. Economic growth will level off towards the end of the year, at exactly zero percent.

Monthly figures for December actually showed a contraction. That means businesses aren’t selling as much and consumers have scaled back.

As counterintuitive as it may seem, this bad economic news may be the good news variable rate mortgage holders have been waiting for.

“[This] The Bank of Canada is openly trying to take some momentum out of the economy, so a mostly weak report won’t disappoint policymakers. ”

As such, the GDP figures are simply a “reaffirmation” that the Bank of Canada will not raise interest rates when it announces its interest rate decision on Wednesday, he said.

“And if growth remains below potential levels, as we expect, they are likely to remain on the sidelines,” he wrote in a note to clients.

Watch | Loblaw’s profits rise 12% as Canadians face higher food prices.

Loblaw’s profits rise 12% as Canadians struggle with rising food prices

Canada’s largest food retailer’s profits rose again. Loblaw’s parent company said his earnings were up nearly 12% in the last quarter compared to the same period last year, surprising Canadians struggling with soaring food prices.

RBC senior economist Claire Fan agrees that RBC will almost certainly proceed with next week’s expected moratorium.

Going forward, the job market will be one to watch, she said.

Red-hot job market too hot for Bank of Canada

Canadian employers added 150,000 jobs in January. This was about 10 times higher than economists expected.

Economists’ consensus believes that another 5,000 jobs will be added when February figures are released on Friday.

Huang said the real issue isn’t just the number of jobs added. The question is whether wage growth will continue to slow.

Wages have never risen as much as prices have. So workers have really lost their purchasing power in the last two years. Wage growth peaked at 5.6% in November last year, according to Statistics Canada.

Watch | New data suggests Canada’s economy is slowing.

Canada’s economy is slowing, new data suggests

Gross domestic product fell slightly in December, according to new data from Statistics Canada, a sign the Bank of Canada’s plan to slow the economy is working. For distressed consumers, this could mean a break from rising interest rates.

Wages are now stable at around 4.5%.

Fan said the central bank hopes it will ease further. “If it’s still going down, it’s probably enough to keep the Bank of Canada where it is now,” she told CBC News.

So GDP has slowed, inflation has slowed, and wage growth has slowed.

Neither is particularly good news for workers. But economists agree the Bank of Canada has pulled off the moratorium well, enough to finally give households struggling with rising debt payments and impending mortgage renewals a little break.

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