Surprise No Surprise - BoC Holds the Line

December 8, 2023 - The Bank of Canada (BoC) kept its policy rate at 5% in its December 6 rate setting, as was widely expected. The Bank cited reducing inflation rates, both in the headline CPI and its preferred measures (CPI trim, median and common), along with easing job pressures and a contraction in Q3 GDP as evidence that the policy rate is at the "right" level. The announcement was generally dovish in tone, indicating that the BoC is not contemplating any further rate increases if the trends they identified continue. While acknowledging the recent stronger-than-expected growth in US GDP, the BoC said they expected the American economy to weaken in the coming months, in line with what is happening globally, as the Federal Reserve Board's rate increases work their way through.

However, the announcement closed on a cautionary note: "Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed." Future rate decisions would be based on continued, sustained easing in measures of core inflation. Their goal is to see "balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour." The Bank is also continuing its policy of quantitative tightening. 

Given the balance in the announcement between dovishness and hawkishness, it's no surprise that the BoC did not give any indication of when it might start to reduce interest rates - for now, "watchful waiting" is the rule. You can read the text of the Bank's announcement here.