The Bank of Canada is expected to keep interest rates on hold Wednesday as previous hikes have yet to fully impact the economy, according to experts. The current overnight rate sits at 4.50% as the bank works towards its two percent inflation target and monitors the country’s financial system after the banking crisis in the US.

 

Royce Mendes, managing director and head of macro strategy at Desjardins, has predicted a rocky ride ahead, and that the bank should prepare accordingly. “We haven’t seen the full impact of past monetary policy tightening, and I do expect that overtime we’re going to see more volatility in the market,” Mendes stated.

 

Mendes also suggests that the bank should assure the public that they have the tools necessary to support the financial system, beyond keeping rates on hold for now. “They may concentrate on the banking sector by using the tools available to them for injecting liquidity into the financial system, he claimed. This would strengthen banks and markets in advance of probable future turbulence.


Mendes emphasizes the importance of the bank driving home this distinction during its announcement, stating “That’s a distinction that they’re going to want to drive home tomorrow.”

 

The Bank of Canada has been working to navigate a balancing act between supporting the country’s economic recovery and keeping an eye on rising inflation rates. Its decision on interest rates will be closely watched by both investors and the public, as it could have significant implications for the future of the Canadian economy. 

 

 

We haven’t seen the full impact of past monetary policy tightening and I do expect that over time we’re going to see more volatility in the market,” he said.

 

Mendes added that policymakers need to take this into account and suggested that the bank could reassure the public by demonstrating that they have the necessary tools to support the financial system.

 

“They have the financial system tools, liquidity injection tools, that they can use to focus on the banking system,” he said.

 

This would help support markets and banks ahead of any possible turmoil, he said.

 

“That’s a distinction that they’re going to want to drive home tomorrow,” he said.

 

Despite the warnings of potential volatility ahead, the bank is expected to maintain a cautious approach in its decision-making, as it seeks to balance inflation targets with economic growth and stability. The Bank of Canada has been gradually increasing interest rates over the past few years in response to a strong Canadian economy, but the recent turmoil in global markets has prompted some experts to call for a more cautious approach.

 

For now, it appears that the bank will continue to focus on ensuring financial stability and maintaining confidence in the Canadian economy, while keeping a watchful eye on any potential risks that may arise in the months ahead.