Bank of Canada Hits the Pause Button

The Bank of Canada has been on a tear with interest rates, raising target overnight rates in all eight of its policy meetings between March 2022 and January 2023, including a whopping100-basis-point increase in July. But the central bank paused at its most-recent meeting in early March 2023, keeping the target rate at 4.50% and noting that "global growth continues to slow, and inflation, while still too high, is coming down due primarily to lower energy prices." With year-over-year economic growth flat in the fourth quarter, the central bank added that "restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand." Canada's economy has a high exposure to housing and financials, both rate-sensitive segments, as well as Energy, where oil prices have fallen some 30% from a year ago. The central bank projects the country's consumer price inflation will soften to around 3% by the middle of this year, and plans to hold interest rates at the current level, which may put Canada about one quarter ahead of when the U.S. Federal Reserve also hits pause. We believe that select companies in our Canadian coverage continue to offer opportunities.