The Bank of Canada met on Wednesday and decided to hold the overnight lending rate – at 4.5%
Why was this decision made:
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o Inflation in many countries is easing in the face of:
o Lower energy prices
o Normalizing supply chains
o Tighter monetary policy
o On the other side:
o Labour markets remain tight.
o Persistent price pressures in many economies especially for services
What is important to watch:
US growth is expected to slow – due to weaknesses in many sectors which are important to Canadian exports.
Tightened monetary policies and lending requirements in the US and Europe due to banking system weaknesses.
China’s economy has rebounded especially in the service sector.
Higher interest rates and costs of borrowing as individuals’ mortgages come due for maturity – will impact the nation and result in a moderation in consumption.
Anticipated softening foreign demand which will restrain exports and business investments.
Key stats:
– MPR predicts global growth by 2.6% in 2023, 2.1% in 2024 and 2.8% in 2025.
– CPI inflation eased to 5.2% in February – expecting it to fall quickly to around 3% in the middle of the year and then decline to 2% by the end of 2024.
– Wage Growth & Service Price inflation – are coming down SLOW – therefore getting inflation down to 2% may remain challenging in the coming 12-18 months.
The Bank’s statement Quantitative tightening continues to complement this restrictive stance. Governing Council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.
The next scheduled date for announcing the overnight rate target is June 7, 2023.
The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on July 12, 2023.
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