U of R economist expects Bank of Canada to hold interest rate

After almost a year, interest rate hikes by the Bank of Canada might be done.

The bank raised its key interest rate eight times between March 2022 and January of this year. The rate is currently sitting at 4.5 per cent.

The central bank says the increases were done to try to curb inflation. Now many economists believe the bank will put further increases on hold for the rest of 2023.

According to a survey by Australian comparison website Finder.com, 88 per cent of economists believe the Bank of Canada will hold its current rate when it makes an announcement on Wednesday.

“I think the markets and the analysts have this largely right,” University of Regina economics professor Jason Childs told Gormley on Monday.

“I think you’re going to see (the rate) pause. There’s some indication that the rate hikes are doing what they’re intended to do in terms of softening the housing market a little bit and tamping down some of the other things.”

As of January, Canada’s inflation rate was 5.9 per cent, well above the central bank’s two per cent target.

Because of that, Childs believes there’s still a chance the central bank might raise rates again.

“The real trick to this is remembering that monetary policy works with a long and variable lag, so we don’t know when the actions they took six months ago are going to have an effect,” he said. “Are they starting to have effect now or is it going to take another six months? We just don’t know.”

Childs said the lack of clarity in measuring the impact of the bank’s policy is something that will be subject to debate for years.

The bank’s aggressive approach has been met with criticism from some economists and labour representatives.