In its latest announcement, the Bank of Canada has decided to keep its target for the overnight rate at 5%, maintaining the Bank Rate at 5¼% and the deposit rate at 5%. The central bank is also continuing its strategy of quantitative tightening.
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Key highlights from the announcement include:
- The global economy is projected to grow at approximately 3%, with most advanced economies experiencing a gradual easing of inflation.
- The US economy has outperformed expectations, driven by strong consumption and investment. Despite a forecasted slowdown in the latter half of the year, growth is expected to surpass earlier predictions.
- The euro area is anticipated to recover from its current stagnation, while global oil prices have risen, averaging $5 above the figures assumed in the Bank’s January Monetary Policy Report.
- Bond yields have seen an increase since January, but improved financial conditions, marked by narrower corporate credit spreads and rising equity markets, have been observed.
- Canada’s economy encountered a standstill in growth during the latter half of the previous year, transitioning into a phase of excess supply.
- Labor market conditions have shown signs of easing, with employment growth lagging behind the working-age population growth, pushing the unemployment rate to 6.1% in March.
- Economic growth is expected to resume in 2024, fueled by population growth, increased household spending, and a rebound in residential investment.
- Government spending and business investment are also expected to contribute to economic expansion.
- Exports are predicted to sustain solid growth through 2024.
- The Bank forecasts GDP growth at 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026, with the economy gradually absorbing excess supply.
- February saw the Consumer Price Index (CPI) inflation rate decrease to 2.8%, with a broad-based easing across goods and services.
- Core inflation measures have slowed, indicating a downward momentum.
- The Bank anticipates CPI inflation close to 3% in the first half of this year, drop below 2.5% in the latter half, and achieve the 2% inflation target by 2025.
In the statement announcing the decision to hold the interest rate steady, the Bank of Canada states, “Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months.”
“The Council will be looking for evidence that this downward momentum is sustained. Governing Council is particularly watching the evolution of core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”
The Bank of Canada says it remains resolute in its commitment to restoring price stability for Canadians.
The next scheduled date for announcing the overnight rate target is on Wednesday, June 5, 2024.