TORONTO The Bank of Canada on Wednesday held its key overnight rate at 5.0% as expected and forecast weak growth, while leaving the door open to more rate hikes to tame inflation that could stay above target for another two years.

STORY:

MARKET REACTION: CAD/

LINK:https://www.bankofcanada.ca/2023/10/fad-press-release-2023-10-25/

GRAPHICS:

COMMENTS

DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS AT SCOTIABANK

"I don't see huge changes by the bank here. At the margin, if anything, they're slightly more hawkish, and that's because they inserted language to the effect that 'inflationary risks have increased,' and they pushed out the achievement of 2% inflation a little bit later in time and so they're still worried about inflation despite the most recent print and that's still their focus."

"I think that they still have a tightening bias. They repeated the line about how they're prepared to raise interest rates further if needed. So they're signaling some progress in seeing what they want to see, but they're saying it's not enough yet. So they still have that tightening bias at the margin."

"Whether or not they hike again, that's extremely data dependent. It's going to come down to the next two or three inflation, jobs, wages reports and some of the other evidence on productivity and corporate pricing behavior. They're not signaling in any rush to end hikes at this point in time."

TOM O'GORMAN, DIRECTOR OF FIXED INCOME, FRANKLIN TEMPLETON CANADA

"It was pretty much consensus that it would be this hawkish type hold because inflation has been stubborn to come down ... So it does probably take out some of that dovishness (priced into the market).Rates were expected to be cut earlier - I would expect some of that gets priced out."

"Growth has been coming down and they acknowledge that. But it's stubborn so you'd expect rates to be higher for longer and the economy itself has been doing ok just because of the amount of fiscal stimulus and forbearance by the banks with housing. But I think eventually we're getting to that point where the rate hikes they're going to bite the economy and you are probably going to be close to a recession or recession like type of growth, flat growth here in fairly short order."

DOUG PORTER, CHIEF ECONOMIST, BMO CAPITAL MARKETS

"I don't think there are any big surprises, even on the economic forecast. The central bank has had to readjust its growth outlook partly because of backward revisions, but also because there are increasing signs that higher rates are weighing on the spending."

"The key here is the bank is probably not going to hike rates again, but they not making the mistake they made earlier this year, suggesting that they're on pause."

"They are really driving home the point that they still have a tightening bias and any significant, upside surprise on growth or inflation, could be met with further rate hikes and I think that's about the appropriate stance to take and I think that's actually quite reasonable."

ANDREW KELVIN, CHIEF CANADA STRATEGIST, TD SECURITIES

"Not too many surprises. It's perhaps a touch more dovish than we had expected, but by and large, it is in line with where we thought the bank's tone would fall. Obviously holding the overnight rate unchanged was very widely expected. Given some of the weaker growth we've seen in recent months, it's not a surprise to us that they now see the economy as being in balance. These are pretty material downward revisions."

"At the same time, the bank reiterated that the progress towards price stability has been slower than they'd hoped. So we weren't terribly surprised to see that they threatened additional rate hikes if needed."

"We don't think they will need to hike rates again. I think given this sort of dovish tone around the economy, it feels like it would be difficult to see the BOC change their direction quick enough to do anything in December. But certainly by the time we hit Q1 of next year, we will need to see further progress on inflation if the BOC is going to maintain its current policy rate."

"We think they're gonna hold until the third quarter of next year. What they're clearly flagging here is that the near term risks are towards more tightening, although maybe not as soon as December. Our expectations is that the BOC is done here, but we don't expect cuts until next July."

(Reporting by Ismail Shakil, Siddarth S and Fergal Smith; Editing by Denny Thomas)