The Bank of Canada today held its target for the overnight rate at 5% and stated, “they will be continuing its policy of quantitative tightening”.
The global economy continues to slow and inflation has eased further. In the United States, growth has been stronger than expected, led by robust consumer spending. Growth in the euro area has weakened combined with lower energy prices, this has reduced inflationary pressures. Oil prices are about $10-per-barrel lower than was assumed in the October Monetary Policy Report (MPR). Financial conditions have also eased, with long-term interest rates unwinding some of the sharp increases seen earlier in the fall.
In Canada, economic growth stalled through the middle quarters of 2023 with higher interest rates clearly reducing spending. The labour market continues to ease as job creation has been slower than labour force growth, job vacancies have declined further, and the unemployment rate has risen modestly. On a positive note, wages are still rising by 4-5%.
The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices. Combined with the drop in gasoline prices, this contributed to the easing of CPI inflation to 3.1% in October
The BOC (Bank of Canada) is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed. The BOC wants to see further and sustained easing in core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. To conclude, the Bank states “they remain resolute in its commitment to restoring price stability for Canadians”.
The next scheduled date for announcing the overnight rate target is January 24, 2024.
Source:Bank of Canada