As widely expected, the Bank of Canada announced this morning that it is keeping its policy interest rate at 5.0%. This was the fifth announcement in a row with no change in its trendsetting rate.

We continue to see the Bank with a lighter finger on the pause button. In January, the Bank dropped the “prepared to raise the policy rate further” language from its statement. It kept identical language in today’s forward looking paragraph, continuing to highlight the “persistence in underlying inflation”.  

The Bank sees inflation “close to 3% during the first half of the year before gradually easing”.  With the labour market cooling, the Bank now says “there are some signs that wage pressures may be easing”. This is somewhat notable. Wage growth has been a long standing inflation concern for the Bank, especially in the absence of productivity gains. 

Canadian economic growth remains sluggish (declining in per capita terms) and excess demand has evaporated. The Bank says Canada’s economy is now in ‘modest excess supply”.

With the economy sagging, the Bank is now in a ‘wait and see’ mode for the inflation readings to follow suit. January’s softer CPI report below 3% is encouraging. But as Aristotle warned ‘one swallow does not make a summer’, and the question for the Bank is whether the trend can hold.

Shelter is the main outstanding problem area, and the “biggest contributor to inflation”. In the January Monetary Policy Report, the Bank talked about shelter as a “material headwind” to the return to the 2% inflation target. Governor Macklem has said there’s only so much monetary policy can do to tame shelter costs, especially those caused by structural challenges on the supply side.

The next interest rate announcement is scheduled for April 10 and will be accompanied with a fresh set of forecasts in the new Monetary Policy Report. Our current view is they’ll need more evidence of underlying inflation cooling, waiting for the June meeting to commence rate cuts.

Answer to the previous trivia question: Agnes Macphail was the first woman Member of Parliament. She was elected in 1921.

Today’s trivia question: At the global level, approximately what percentage of unpaid care and domestic work is performed by women?