Dec 6: Bank of Canada Holds Interest Rate at 5%

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.

The following are the main points of the Bank of Canada’s observations in the rate announcement summary:

Global Economic Slowdown: The global economy is slowing, with inflation easing further. In the United States, consumer spending has been robust, but a slowdown is expected due to past policy rate increases. The euro area is experiencing weaker growth and reduced inflationary pressures, partly due to lower energy prices.
Financial Conditions Easing: Oil prices have dropped by about $10-per-barrel since the October Monetary Policy Report. Long-term interest rates have eased, and the US dollar has weakened against most currencies, including Canada’s.
Canadian Economic Growth Stalled: Canada’s economic growth stalled in the middle quarters of 2023, with real GDP contracting at a rate of 1.1% in the third quarter. Factors influencing this include flat consumption growth, business investment, and a volatile export and inventory sector.
Labour Market and Wages: Job creation has slowed, job vacancies have declined, and unemployment has risen modestly. However, wages continue to rise by 4-5%.
Inflation Easing with Concerns: CPI inflation eased to 3.1% in October, aided by a drop in gasoline prices. However, shelter price inflation has increased, driven by higher rents and mortgage interest costs. Core inflation measures are around 3½-4%.

Bank of Canada says the decision to maintain the policy rate at 5% and continue normalizing the balance sheet is based on the moderating effects of current policies on spending and inflation.

Announcing the rate decision, the central bank said, “Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed. Governing Council 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. The Bank aims to restore price stability and is closely monitoring developments.”

The next scheduled date for announcing the overnight rate target is January 24, 2023.