• Bank of Canada decided to hold its overnight policy interest at 5%.

• The move was widely expected by economists and analysts who have been predicting a continued pause.

• The Governor's press conference did not share any new information and reiterated the continued tightening- a surprising move.

• Many consider the pause was a right decision as a rate cut now would ignore the #inflation risk that is looming on us as seen in energy and shelter prices.

There is nothing surprising how the Bank of Canada made that "hold" decision this morning. Every other media outlets and analysts in the country were predicting the move.

As per the press conference and the language shared in the press release, the bank is still hawkish and is trying to balance between the ever looming recession and increasing inflation. Not sure if they are ever be able to make the "soft landing" everyone has been talking about for some time. At this time, I think, the bank did not have any other choice.

What's in the press release language?

Honestly, there is nothing to analyze at this point in the interest rate hiking cycle. The general public and analysts are equally efficient in predicting the market. The Bank of Canada does not have any new tools to demonstrate their understanding of the market.

It is a rough place to be at for the governor and his team.

↔️ ***If they continue with the pause, the public will be as mad as before. ***

⬇️ *****Lowering the interest rate at this point means, they are risking the not-so-tamed inflation to go higher with higher energy prices and higher shelter cost fuelled by higher interest rate.*****

⬆️ *****Increasing the rate is out of question as there have been prediction of very bad depression in the global economy.*****

Per-capita GDP Decline

There are so many analysts pointing to this data point more than before. Many are accusing the Bank to not seeing the obvious that is out there. The Canadian Per- capita GDP is negative for almost four months on a row vs the real GDP which is positive and flat.

This data point suggests that the actual Canadian economy is already shrinking. The widespread recession is masked just because the country is receiving a million of new immigrants and aspirants every year. This is an interesting observation and could come back to hunt us in our fight against inflation.

What's next?

Banks are already forecasting a rate cut starting mid-year probably around June 2024. Royal Bank of Canada, Desjardins and Scotia bank are saying that the language in the press release was softened a lot.

I think rate cuts are coming but not at the pace everyone is predicting. The inflation should remain low for that to happen and that depends on global energy prices and real GDP.

Let's see how things move. 👉

Posted Using InLeo Alpha

Posted Using InLeo Alpha