Bank of Canada Maintains Policy Rate, Continues Quantitative Tightening

Source: Bank of Canada

In its latest announcement, the Bank of Canada has opted to keep the target for the overnight rate steady at 5%, alongside the Bank Rate at 5¼%, and the deposit rate at 5%. The Bank remains committed to its strategy of quantitative tightening.

Global Economic Outlook: A Deceleration

The global economy continues its deceleration, with easing inflationary pressures. Notably, the United States has seen stronger-than-expected growth, driven by robust consumer spending. However, future months may witness a weakening as the impact of previous policy rate increases unfolds. In the euro area, weakened growth, coupled with lower energy prices, has contributed to reduced inflationary pressures. A $10-per-barrel drop in oil prices from the October Monetary Policy Report assumptions further underscores the changing economic landscape.

Canadian Economic Landscape: Moderation and Challenges

In Canada, economic growth encountered a standstill in the middle of 2023. Real GDP contracted at a rate of 1.1% in the third quarter, following a 1.4% growth in the second quarter. Higher interest rates are visibly restraining spending, with consumption growth near zero and business investment essentially flat. Despite wages rising by 4-5%, the labor market is easing, indicated by slower job creation and a rising unemployment rate. The Bank observes signs that the economy is no longer in excess demand.

Inflationary Trends and Policy Decisions

The economic slowdown is mitigating inflationary pressures across a broader range of goods and services. Combined with lower gasoline prices, this contributed to a drop in CPI inflation to 3.1% in October. However, shelter price inflation has increased due to faster growth in rent and housing costs. The Bank, cognizant of the evolving economic conditions, has decided to hold the policy rate at 5% and to persist in normalizing its balance sheet.

Future Considerations: Maintaining a Balanced Approach

Despite signs of moderation in spending and easing price pressures, the Governing Council remains vigilant about potential risks to the inflation outlook. Prepared to raise the policy rate further if necessary, the Council emphasizes sustained easing in core inflation. The Bank continues to assess the delicate balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behavior. A steadfast commitment to restoring price stability for Canadians remains at the forefront of the Bank’s objectives.

Information Note:
The next scheduled announcement for the overnight rate target is January 24, 2023, coinciding with the publication of the Bank of Canada comprehensive outlook for the economy and inflation, inclusive of risk assessments, in the Monetary Policy Report (MPR).

To read more local news and market updates please check our BLOG PAGE

To view Geoff Jarman’s Listings CLICK HERE

Tags: Bank of Canada