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The Bank of Canada has left its benchmark rate unchanged at 5.00%

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The Bank of Canada has left its overnight target rate unchanged at 5.00%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening. In their statement, the Bank said it is “still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation,” and that it wants to see “further and sustained easing in core inflation.”

Global economic growth continues to slow, with inflation easing gradually across most economies, while growth in the United States has been stronger than expected. In the euro area, the economy looks to be in a mild contraction. Meanwhile, oil prices are about $10 per barrel lower than was assumed in the October Monetary Policy Report (MPR). Financial conditions have eased, largely reversing the tightening that occurred last autumn.

The Bank now forecasts global GDP growth of 2½% in 2024 and 2¾% in 2025, following 2023’s 3% pace. With softer growth this year, inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025. Labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs being created at a slower rate than population growth. However, wages are still rising around 4% to 5%.

Economic growth is expected to strengthen gradually around the middle of 2024. In the second half of 2024, household spending will likely pick up and exports and business investment should get a boost from recovering foreign demand. Overall, the Bank forecasts GDP growth of 0.8% in 2024 and 2.4% in 2025, roughly unchanged from its October projection. The Bank expects inflation to remain close to 3% during the first half of this year before gradually easing, returning to the 2% target in 2025.

The next rate announcement is scheduled for Wednesday, March 6th 2024.

 

Sources: Bank of Canada, MPC

Karen Parrot
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