The bank of Canada decided to pause the overnight interest rate at 4.5% which is the second pause in as many months for Canada after a yearlong stretch of rate hiking. Does this mean BOC is on quantitative easing (QE)? The Bank of Canada says "NO" and noted

BOC remains prepared to raise the policy rate further if needed to return inflation to the 2% target

It does not matter if the BoC thinks they are still hawkish and are on Quantitative Tightening phase, but the market is predicting that the bank will not raise the rate again this year. Some analysts are even predicting that the rates will go lower by the end of 2023.

The pause was as expected.

Analysts have been calling for a pause in April for quite some time now. There was a general consensus that BoC will wait for the data on core inflation, economic strength and unemployment to trickle down before making the decision to hike the overnight interest rate.

As I have been sharing on leothreads yesterday, the major indicators the bank looks for making the decision have a lag of three months. We have the CPI data for February 2023 and the bank cannot rely on that number in April. They need to wait until they have the data from April 2023 to make that decision in June 2023.

It is the same with two other indicators as well. The economic strength and the unemployment data are from March 2023. Although the data is showing strength now, the bank is expecting a slowdown in economic activity and job growth going further into 2023. The reason being the continued QT that is happening south of the border. The bank projects the economy to grow by 1.4% this year and 1.3% in 2024.

Here's an excerpt from the press release:

As more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption is expected to moderate this year. Softening foreign demand is expected to restrain exports and business investment. Overall, GDP growth is projected to be weak through the remainder of this year before strengthening gradually next year.

The Unexpected Growth

The BOC recognized the unexpected economic growth that was not predicted before. The unexpected growth is expected to slow down in the coming months in Europe and the USA once the economic restrictive policies start to show their effect.

US growth is expected to slow considerably in the coming months, with particular weakness in sectors that are important for Canadian exports. The Bank’s April Monetary Policy Report (MPR) projects global growth of 2.6% this year, 2.1% in 2024, and 2.8% in 2025.

Recession not yet

There is a sentence used in the press release where the choice of words is interesting.

This implies the economy will move into excess supply in the second half of this year.

The bank is projecting the economy will move into a situation where the supply will be much higher than the demand. In other words that is "recession" when the economy is not growing but has enough supply. They are not using the term "recession" because they think the economy will rebound before hitting the actual recession.

On the other hand, the bank also appreciates the task in hand to bring inflation down to 2% even though it is slowing at around 5% now. The bank hopes the inflation to fall to 3% by mid 2023 but it will take another year and a half to finally reach the target level at 2%. That's a long road of recovery.

My thoughts

I think we are past the rate hikes for Canada if the economy sees what is expected from here in the macro-economic and political terms. We definitely do not know about any black swan events that would change the course such as world war. But looking at the outlook for 2023 and 2024, there are no indicators that suggest the bank will go back to a rate hike spree like 2022.

This could be taken as a positive outlook by the market. Stocks, gold and #bitcoin could rally anticipating the similar move by other developed economies including the USA. It also depends on the US CPI number and the tone the Feds will present.

For now, I am happy that my monthly mortgage rate is not increasing. Time to celebrate.

What are your thoughts? Is this the start of a new bull market for #crypto?