The Bank of Canada keeps the policy rate steady and tightens the economy further. With the bank rate at 4.75% and the deposit rate at 4.5%. Today the Bank of Canada maintained its objective for the overnight rate at 4.5%. Additionally, the Bank is keeping up its quantitative tightening strategy.
Due to declining energy prices and stricter monetary policy, inflation is decreasing in many nations. However, labor markets are still constrained, and measures of core inflation in many advanced economies point to ongoing pricing pressure.
The rate of global economic growth has exceeded expectations. Although the growth in the US and Europe has come as a pleasant surprise, it is anticipated to slow down.
Demand still outpaces supply in Canada, where the labor market is relatively tight. The first quarter’s economic growth appears to be greater than anticipated in January. This is due to a pickup in exports and robust consumption growth.
Studies indicates that even though severe labor shortages are beginning to lessen, pay growth is still high in comparison to productivity growth. Strong population growth is supporting employment growth. Strong population growth increases the labor supply, and increases aggregate consumption. The housing market’s activity is still slow.
And, what else?
Consumption is anticipated to fall this year as more individuals renew their mortgages at higher rates. Exports and company investment are predicted to be constrained by softening global demand.
Globally, poor GDP growth is anticipated to continue into this year and then gradually pick up next year. This suggests that in the second half of this year, there will be a surplus supply in the economy. The Bank now anticipates that Canada’s GDP will expand by 1.4% this year, 1.3% in 2024, and then 2.5% in 2025.
The Bank’s favored core inflation measures were just under 5%, and CPI inflation dropped to 5.2% in February. The Bank anticipates a sharp reduction in CPI inflation to roughly 3%. Then a more gradual decline to the objective of 2% by the end of 2024.
Although inflation expectations are progressively declining, service price inflation and wage growth are still high. Since corporate pricing behavior has not yet returned to normal, bringing inflation the remaining 2% back to target may prove to be more challenging.
The Governing Council chose to keep the policy rate at 4.5% in light of its predictions for growth and inflation. This restrictive attitude continues to be complemented with quantitative tightening.
The Governing Council is still determining if monetary policy is restrictive enough to reduce price pressures. The governing council is still ready to increase the policy rate further if necessary. The Bank is steadfast in its determination to get Canadians’ prices back under control.
