In its latest announcement, the Bank of Canada has decided to maintain its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%.

The bank reaffirms its commitment to the policy of quantitative tightening.

Source: Bank of Canada 

Global Economic Overview:

Despite stronger-than-expected growth in the United States, global economic growth continues to decelerate. The Euro area is experiencing a mild contraction, while in China, low consumer confidence and policy uncertainty are expected to restrain activity. Oil prices, currently $10 per barrel lower than previously assumed, contribute to the evolving economic landscape.

Global Growth Forecast:

The Bank anticipates global GDP growth of 2½% in 2024 and 2¾% in 2025, following the 3% pace in 2023. Slower growth this year is expected to bring down inflation rates in most advanced economies gradually, reaching central bank targets by 2025.

Canadian Economic Outlook:

The Canadian economy, stagnant since mid-2023, is expected to remain close to zero growth through Q1 2024. Factors such as reduced consumer spending, business investment contraction, and weak growth have contributed to an economy operating in modest excess supply.

Future Projections:

The Bank projects a gradual strengthening of economic growth around mid-2024, with household spending, exports, and business investments expected to pick up. With GDP growth forecasted at 0.8% in 2024 and 2.4% in 2025, the Bank’s outlook remains relatively unchanged from October’s projections.

Inflation and Monetary Policy:

CPI inflation ended the year at 3.4%, with shelter costs being the main contributor to above-target inflation. The Bank expects inflation to hover around 3% in H1 2024, gradually easing and returning to the 2% target in 2025. Given the outlook, the Governing Council decided to maintain the policy rate at 5% and continue the normalization of the Bank’s balance sheet.

Looking Forward:

The Governing Council remains vigilant about risks to the inflation outlook, emphasizing the importance of sustained easing in core inflation. The Bank will announce its next overnight rate target on March 6, 2024, with the full outlook for the economy and inflation disclosed in the Monetary Policy Report on April 10, 2024.

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