MNI INTERVIEW: BOC On Hold Barring Fresh Weakness - Ex Staffer
The Bank of Canada is likely on hold through at least the first half of the year, though a rate cut remains possible if the economy shows fresh weakness, former BOC and finance department economist Charles St-Arnaud told MNI.
“As we start the first half, I don’t see the Bank of Canada cutting," said St-Arnaud, now chief economist at Servus credit union in Alberta. "They made it clear that there’s no intention of cutting rates, they would prefer to stay on hold."
The BOC would only potentially resort to another rate reduction on fresh setbacks such as fourth-quarter GDP stalling or contracting to undo the third-quarter rebound, he said. The job market could also give back some recent strong gains, with industry surveys showing weak hiring plans, he said. “Who’s hiring if no business wants to hire?”
Statistics Canada reports December job figures Friday at 830am EST and an MNI survey shows economists predict a 10,000 decline after a rise of 181,000 over the prior three months.
St-Arnaud downplayed the possibility of a late 2026 rate hike that some investors are expecting, pointing to an ongoing drag from housing costs on core inflation. That moderation provides breathing room if the economy grows more than expected, he said.
UPSIDE RISKS RECEDE
Governor Tiff Macklem also says he intends to keep rates on hold unless there's a major shock to the economy, and St-Arnaud said it would take time for evidence to build up that another cut may be needed. (See: MNI: Mild US And China Tariff Damage- NS Finance Minister)
While there's some slack in the economy to deal with growth that's above expectations, the Bank's forecast for 2026 growth of around 1% makes any shortfalls more relevant for a policy switch, St-Arnaud said.
With population now shrinking after government immigration curbs, it's also possible the 2.25% policy rate becomes slightly restrictive, he said. (See: MNI INTERVIEW: Supply Damage Supports BOC Hold- Dal's McNeil)
“It’s hard to have a balanced outlook considering the risks on the economy are mainly on the downside,” he said. “The upside surprises are that the downside risks have disappeared.”
One threat still in place comes from new demands from President Donald Trump as North American free trade talks resume this year, he said, and U.S. actions around Venezuela add to that headwind.
