Intelligent Investment

Interest Rates Hold As Inflation Concerns Persist

Canada Monthly Market Commentary

January 30, 2024 2 Minute Read

Interest rates held steady at 5.00% in the Bank of Canada’s first meeting of the year as the central bank officially pivoted away from any more potential interest rate hikes. In its latest monetary policy statement, the Bank of Canada dropped all mentions of raising the policy interest rate if needed and noted that deliberations have shifted to “how long to maintain the current restrictive stance.” While this pivot brings the Canadian economy one step closer to seeing interest rates come down, the central bank continued to express concern over inflation. In particular, core inflation measures have not shown the desired levels of sustained declines with recent datapoints continuing to fluctuate.

Consensus economist expectations currently still call for interest rate cuts to begin in Q2 2024, however, the recent volatility in inflation has tempered some of the conviction. This can be evidenced in the Canada 10-year bond yield which, after steadily declining over Q4 2023 on growing confidence for imminent interest rate cuts, has climbed over 30 bps since the new year into the mid-3% range.

With interest rates likely to hold at current levels for a few more months at the very least, the Bank of Canada expects economic growth to remain close to zero through Q1 2024 before picking up gradually for a total annual increase of 0.8% in 2024. The pickup in economic activity would also coincide with when interest rates are expected to fall and has led to improved sentiment in the real estate investment market. Real estate cap rates had steadily increased throughout 2023 but upwards pressure is easing amid stronger economic prospects and lower bond yields relative to last year. However, headwinds from persistent inflation, supply chain disruptions and widening global conflicts are risks that could dampen investor confidence.

Economic Highlights:

  • Employment levels held relatively steady in December 2023, rising by 100 jobs with the unemployment rate unchanged at 5.8%.
  • Headline inflation accelerated slightly to 3.4% in December 2023 alongside an increase in core inflation measures.
  • Retail sales fell 0.2% in November 2023 with advanced estimates suggesting a 0.8% rebound in December 2023.


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