For the first time in a year, the Bank of Canada has left its overnight target rate unchanged at 4.50%
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This is the Bank’s first rate hold of this rate-hike cycle, which began in March 2022. The move was expected.

In January, the Bank of Canada said it would pause rate hikes. No mainstream economists expected it to "un-pause" after just one rate meeting. The BoC has maintained its "conditional pause," leaving the policy rate at 4.50%.

As a result, the prime rate stays at a 22-year high of 6.70%. But, much to borrowers' relief, this is the first time it hasn't moved in a year of BoC decisions.

The highlighted quotes from the BoC's statement:

• Pressures in product and labour markets are expected to ease
• CPI inflation will come down to around 3% in the middle of this year.
• Year-over-year measures of core inflation ticked down to about 5%, and 3-month measurements are around 3½%." (The BoC closely watches 3-month inflation rates as they're more responsive to economic changes than annual rates.) ·
• The Bank's last messaging suggested CPI would drop "to the 2% target in 2024," and there's no indication yet that this won't happen. That said, "If the early year strength persists through Q1, the BoC’s tone could turn more hawkish in a hurry," BMO said.

The BoC's next rate meeting is when it's expected to announce a new estimate for the neutral rate. The mid-point estimate for neutral is currently 2.50%. Many economists think that's too low to keep inflation on target.

Either way, it's much lower than today, suggesting rates have material room to fall when unemployment (finally) starts building. Overnight index swaps suggest a 75% chance of no hikes in the BoC's April meeting. Although, the market is still almost fully pricing in one more hike by September. (Expect that to change, Capital Economics said, noting, "we continue to judge that the Bank’s next move will be an interest rate cut.")

A recession is still on the table, and the current short-term economic noise should give way to pronounced weakness, lower yields and lower fixed rates—later this year or next. RBC's call on housing: "We think [home sales] activity will hit bottom sometime this spring...We believe solid fundamentals will come to the fore in 2024 once the market has adjusted to higher interest rates."

“Governing Council will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.” Officials from the Bank of Canada have indicated that economic data will drive future rate decisions. The next announcement will take place on April 12.

Below is a picture of the market-implied Bank of Canada rate path put out by Chatham Financial.