The Bank of Canada (BoC) held its target for the overnight rate on Wednesday, maintaining it at 4.5%.

This marks the second consecutive pause in interest rate hikes following the bank's aggressive hiking schedule that saw rates soar from a historic low of 0.25% to 4.5% between March 2022 and January of this year.

With inflation having taken several small steps down in recent months, slowing to 5.2% in February, the BoC’s pauses will buy it some time to see how the already-implemented hikes will continue to impact inflation — namely, whether they’re enough rein inflation in closer to the bank’s target of 2%.

"As more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption is expected to moderate this year," the BoC announcement reads.

The bank is predicting inflation to "fall quickly to around 3% in the middle of this year and then decline more gradually to the 2% target by the end of 2024." It noted, however, that "getting inflation the rest of the way back to 2% could prove to be more difficult because inflation expectations are coming down slowly, service price inflation and wage growth remain elevated, and corporate pricing behaviour has yet to normalize."

Borrowers already tied down by high interest payments will likely find some relief in the lack of a rate hike, but that reprieve may be short-lived. A number of experts are forecasting an additional rate hike this year, with some having had (incorrectly) predicted it as soon as April.

Others, however, are predicting rate cuts later this year. In February, the BoC published the results of its Market Participants Survey, based on responses from roughly 30 financial market participants, including senior economists and strategists at banks, pension funds, asset management firms, and insurance companies. The median response from participants was an expectation that the BoC will cut interest rates by 25 basis points in October and again in December, bringing the policy rate down to 4% by the end of the year.

In its Wednesday announcement, the BoC said its Governing Council "continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target."

There are five more BoC rate announcements scheduled in 2023, with the next coming on June 7.

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