MNI INTERVIEW: BOC Pause Case Boosted By SVB Collapse: Antunes

The BOC is poised for a long interest-rate pause with the demise of Silicon Valley Bank weighing on already clear signs that growth is slowing enough to pull inflation back to target, former central bank researcher and Conference Board of Canada Chief Economist Pedro Antunes told MNI.

"The SVB collapse will worry central bankers and likely make them more cautious about raising rates further," Antunes said by email Monday.

Bank of Canada Governor Tiff Macklem last week held the key rate at 4.5% after eight previous increases and underlined he's likely finished with inflation seen slowing to about 3% by mid-year and to the 2% target in 2024. Officials also said they could hike again if upside inflation risks were realized. (See: MNI BOC WATCH:Key Rate Stays 4.5%, Pause Affirmed As CPI Slows)

Canada was already unique among G7 central banks in ending the hiking cycle and that optimism was justified by Canada's 1 million new immigrants over the past year boosting production capacity and the steep decline in the country's previously hot housing market, Antunes said.

“We have inflation continuing to trend down, obviously there may be hiccups along the way,” he said in an earlier interview on Friday for MNI's FedSpeak podcast.

“Canada will pause, I think now that pause is probably until the end of next year,” Antunes said. “This is an interest rate of 4.5% that is still above neutral,” he said. “It will continue to work against the economy even at the level that it’s at without necessarily having to raise it further.”

Ex-FDIC Chair Sheila Bair told MNI Sunday she hopes the SVB episode prompts the Fed to pause its rate hiking campaign.