By Ketki Saxena
Investing.com – The Bank of Canada holds its next policy announcement next Wednesday on March 8. The Bank of Canada has, over the last 12 months, hiked interest rates 8 consecutive times from 0.25% in March last year to its current level of 4.5%.
In a statement released during last month's rate decision, BoC said they would assess impact from cumulative hikes before making any changes to current levels.
Particularly after a dismal GDP reading that showed the Canadian economy stalled in the last quarter of 2022, economists are in consensus that the Bank of Canada will hold interest rates steady at its key policy announcement next Wednesday.
But experts say the bigger question is what happens after this meeting, as changing economic conditions create a credibility and communication problem for the central bank.
“I think like the bigger question and the bigger challenge that they're [the Bank of Canada] going to have is, ‘What happens after March?’” noted Robert Kavcic, director and senior economist at BMO (TSX:BMO) Capital Markets as reported by BNN Bloomberg.
“The U.S. Federal Reserve is probably going to be tightening at least two more times, if not more. For the Bank of Canada, if inflation remains sticky and if the economy does not break down, are they going to be able to sit there with the policy rates they have and pause as they suggested?”
Kavcic also warns about further potential loss in communication credibility if the Bank of Canada is forced to hike later in the year after signaling a pause.
“What happens if later in the spring or summer they [BoC] come out and start tightening again? Well, that’s just going to be another knock against their communication credibility,” Kavcic said.
The BoC has seen serious challenges in communication credibility during the pandemic, first for signaling that rates would remain low for a very long time at the beginning of the pandemic, and then later facing heavy criticism for continuing to refer to inflation as transitory even as inflation skyrocketed last year.