Bank of Canada Governor Macklem says the Bank expects strong consumption-led growth in the second ha

Today's Bank of Canada rate decision is all about signalling what's to come in 2024.

There will be cuts, but the questions are when and how many?

The BOC won't have the answers yet as the central bank awaits more data but it may want to offer up a bias or push-back against aggressive market pricing. Currently, the market sees a 22% chance of a cut at the next meeting on January 24, with 116 bps in cuts priced in for next year.

I think the March/April period is key. The Canadian housing market is struggling right now and there's something of a buyers strike. That could be eased by the latest drop in the government of Canada 5-year to 3.41% from as high as 4.46%. It's led to 4.99% five-year fixed rate mortgages for the first time in awhile.

Canada 5 year
Canada 5 year weekly

The March/April period is so critical because that's when the housing market wakes up after the winter deep freeze. An imbalance of sellers has been building and if rates stay high, it could lead to a flush in home prices -- something that wouldn't be unpopular in Canada after years of super-charged growth.

On the BOC's mind as that timeline rollls around will be what happened this year. The BOC signaled a pause in hikes early in 2023 and that led to a busy spring housing market. They later had to restart hikes in yet-another embarrassing forecasting error.

Generals always fight the last war and I suspect Macklem will be inclined to keep rates high through the spring. If so, he may try to start pushing back on the market today, though he's most likely to highlight data dependence instead.

This decision only includes the statement and no press conference, however there will be a speech tomorrow from the BOC's Gravelle highlighting any shifts.

This is the key part of the statement:

With clearer signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. However, Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed.

The Canadian dollar will slump if the bolded portion is removed, but I don't see that as likely, especially given strong jobs numbers last Friday and the very strong recent retail sales data, though that might be balanced by the tick lower in inflation.

If Macklem is ready to weigh into the spring debate, the statement might hint at a 'higher for longer' scenario but I wouldn't expect anything explicit. He recently said that it's not the time to be thinking about cutting rates but that kind of language has a long history with central bankers right up until they cut.