Bank of Canada seen on hold even as economy accelerates

The Bank of Canada is expected to take in stride surprising recent economic strength and leave interest rates unchanged at its meeting on Wednesday, pinning its hopes on activity cooling as higher borrowing costs sink in, analysts said.

Last month, the Bank of Canada became the first major global central bank to pause its rate-hiking campaign, after lifting its benchmark rate to a 15-year high of 4.50per cent. It said no further tightening would be needed if the economy slows, or even moves into a slight recession, as it expects, reports Reuters.

While inflation has cooled in recent months, other economic indicators are pointing to an economy that is picking up pace from a sluggish fourth quarter.

Preliminary data last week showed that gross domestic product (GDP) rose by 0.3per cent month-over-month in February, building on a stronger-than-expected 0.5per cent gain in January. Employment data for March showed a seventh consecutive job gain.

"The economy is showing renewed momentum, with more people working and seeing their incomes rise," said James Orlando, a senior economist at TD Economics. "They are out spending again. This will carry through to higher economic growth."

That is welcome news for most, but not for Bank of Canada (BoC) Governor Tiff Macklem, as it could call into question his decision to announce a conditional rate pause in January.

Macklem is seeking to rebuild public trust after facing criticism for acting too slowly to tame inflation, which spiked after pandemic restrictions were lifted. The central bank has admitted to having initially misjudged the price pressures.

That effort could be complicated by Prime Minister Justin Trudeau's recent budget, which has outlined billions of dollars in new spending.