Written by 9:21 AM Bank of Canada, Interest Rates Views: 2

Bank of Canada preview: Possible first rate pause in 12 months expected this week

The Bank of Canada is finally expected to leave rates unchanged as it monitors the economic impact of its monetary policy tightening.

Bank of Canada to pause rate hikes

After delivering eight consecutive rate hikes over the past year, the Bank of Canada is finally expected to leave rates unchanged when it meets this week.

In a statement from its January meeting, the BoC said, “…if economic developments evolve broadly in line with the [Bank’s] outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”

That guidance came into question soon after, however, when labour growth surprised to the upside with the creation of 150,000 new jobs in January.

“That wasn’t part of the central bank’s plan,” noted Royce Mendes, Managing Director and Head of Macro Strategy at Desjardins. Not only that, but U.S. inflation numbers suggested a re-acceleration in consumer price growth south of the border.

“Then the data began to cooperate,” Mendes wrote in a research note, pointing to Canadian inflation coming in below expectations for the second straight month and fourth-quarter GDP coming in flat, well below BoC forecasts of 1.3% growth.

As a result, “there’s little doubt the Bank of Canada will hold rates steady” at its upcoming meeting on Wednesday, Mendes suggested.

“The statement accompanying the decision will again leave the door open to further rate hikes if the economy or inflation veer off this path,” he added. “But central bankers will be able to credibly argue that both inflation and the economy have made as much progress as predicted back in January, if not more.”

In a survey of 22 banks conducted by Bloomberg, all expect the Bank of Canada to leave rates unchanged this week.

What the forecasters are saying…

On the rate decision:

  • ING: “With inflation data undershooting expectations, and GDP growth stalling, we have much more confidence that the Bank of Canada will leave rates unchanged [this] week.”
  • CIBC: “No doubt, the Bank of Canada, while leaving rates on hold in the week ahead, will want to remind investors that the pause is still conditional on seeing the economy track in line with its last forecast. This is still a hawkish pause, in effect. But it’s also a made-in-Canada pause that will be less influenced by the Fed than many think.”


  • CIBC: “The Canadian economy surprisingly stalled in the final quarter of 2022, but early indications suggest that it started the New Year on a better footing…Even though the advance estimate for January pointed to solid growth to start 2023, signs of a weaker-than-expected economy and easing inflationary pressures should be enough to keep the Bank of Canada on hold.”

On future rate cuts:

  • ING: “Canada is much more exposed to interest rates rate hikes via a higher prevalence of variable-rate borrowing and high debt levels versus the U.S…Consequently, we are concerned that the Canadian economy is likely to be more impacted by the interest rate hikes already enacted than most other major economies…As a result, we see a strong chance that the BoC will end up reversing course and cutting interest rates later in the year.”

Looking beyond this week:

  • Desjardins: “Economies around the world have proven more resilient in the face of higher interest rates than previously expected. So, in the near-term, markets will continue to price in a probability of one or more rate increases. But the data flow is finally beginning to show that the economy and inflationary trends are more or less going according to the Bank of Canada’s plan.”
  • National Bank: “As we look beyond Wednesday’s meeting, recent data has given us more confidence that the BoC’s pause can be sustained. Indeed, the bar to achieve earlier growth/inflation projections is marginally higher if anything. It’s true that U.S. data has remained hot of late and that has exerted upward pressure on Canadian rates/expectations, but we think BoC-Fed policy divergence can and will continue.”

The latest rate forecasts

The following are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parenthesis.

  Target Rate:
Year-end ’23
Target Rate:
Year-end ’24
Target Rate:
Year-end ’25
5-Year BoC Bond Yield:
Year-end ’23
5-Year BoC Bond Yield:
Year-end ’24
BMO 4.50% 3.50% NA 3.25% (+5bps)
CIBC 4.50% 3.00% NA NA NA
NBC 4.25% (+25bps) 3.00% (-25bps) NA 2.90% (+20bps) 2.65% (-10bps)
RBC 4.50% 3.00% NA 2.75% 2.55%
Scotia 4.50% (+25bps) 3.00% NA 3.35% 3.25%
TD 4.50% (+50bps) 2.50% (+25 bps) NA 2.90% (+20bps) 2.60%


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Last modified: May 22, 2023

Steve Huebl is a graduate of Ryerson University's School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.