Bank of Canada’s policy decision – hawkish hold

As was widely anticipated, the Bank of Canada (BoC) opted to make no changes to its policy stance following hikes at its last two meetings, holding the overnight rate target steady at 5.0% in today’s (Sept 6) policy decision1 while continuing its quantitative tightening program.

The accompanying statement (as reproduced below) indicates that the BoC is maintaining its hawkish tilt by flagging concerns about inflation — specifically, the recent trend readings on core inflation that indicate to policymakers that “there has been little recent downward momentum in underlying inflation” and that they are “prepared to increase the policy interest rate further if needed” in response to ongoing concerns about the “persistent of underlying inflationary pressures.”

This focus on price pressures even tempered the statement’s more “dovish” aspects. Note that the BoC’s mandate is to keep inflation low and stable (there is no explicit employment objective, like the US Federal Reserve).

For example, while the statement did acknowledge the recent string of soft activity data, which includes last week’s reports showing output contracted in Q22 by 0.2% (note that the BoC’s July’s Monetary Policy Report3 had penciled in +1.5%) and no improvement to start Q34, by noting that the domestic economy “has entered a period of weaker growth,” this is viewed in a positive light from an inflation lens given weaker growth “is needed to relieve price pressures.” So, it is not a bug but a feature of the “lagged effects” policy-tightening. Further, while the “tightness in the labour market has continued to ease gradually,” wage growth remains firm.

The bottom line is that the Bank “remains resolute in its commitment to restoring price stability for Canadians,” and achieving that becomes “more difficult” the longer high inflation persists. Accordingly, while the BoC hit pause today, the bias toward hiking rates is not leaving anytime soon unless inflation proves more cooperative than it has been – the BoC is willing to tolerate further weakening in activity to achieve that end. As it stands, the market views the odds of another hike as a coin toss, but the BoC’s messaging clearly intends to try and dispel any expectations of an imminent reversal of its policy stance (and a related fade in longer-term rates).

1 Bank of Canada, Bank of Canada maintains policy rate, continues quantitative tightening, Press Releases, September 6, 2023,
2 Statistics Canada, Gross domestic product, income and expenditure, second quarter 2023, The Daily, Released on September 1, 2023.
3 Bank of Canada, Monetary Policy Report – July 2023, July 12, 2023,
4 Statistics Canada, Gross domestic product by industry, June 2023, The Daily, Released on September 1, 2023.

Written by: David Onyett-Jeffries
David Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP) and provides macro-economic guidance to GCLP and its affiliates—Alta Capital Management LLC and GuardCap Asset Management Limited.








Bank of Canada increases policy interest rate by 50 basis points, continues quantitative tightening


Media Relations
Ottawa, Ontario

December 7, 2022

The Bank of Canada today increased its target for the overnight rate to 4¼%, with the Bank Rate at 4½% and the deposit rate at 4¼%. The Bank is also continuing its policy of quantitative tightening.

Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected at the time of the October Monetary Policy Report (MPR). In the United States, the economy is weakening but consumption continues to be solid and the labour market remains overheated. The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events.

In Canada, GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canada’s labour market remains tight, with unemployment near historic lows. While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline. Overall, the data since the October MPR support the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year.

CPI inflation remained at 6.9% in October, with many of the goods and services Canadians regularly buy showing large price increases. Measures of core inflation remain around 5%. Three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum. However, inflation is still too high and short-term inflation expectations remain elevated. The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched.

Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target. Governing Council continues to assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding. Quantitative tightening is complementing increases in the policy rate. We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.







1. Bank of Canada, Bank of Canada increases policy interest rate by 50 basis points, continues quantitative tightening, Press Release issued on December 7, 2022,
2. Bank of Canada, Monetary Policy Report, October 2022, Report of the Governing Council, October 26, 2022,

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