Toronto 
The Bank of Canada has decided to hold the interest rate steady at an overnight rate of 5%, with the Bank Rate at 5¼% and the deposit rate at 5%.
This decision comes amidst a backdrop of evolving economic conditions both globally and within Canada. The Bank has also opted to continue with its policy of quantitative tightening.
The following are the main points of the Bank of Canada’s observations in the rate announcement summary:
- Global Economic Trends:
- Advanced economies witness declining inflation, but core inflation remains high.
- Q2 2023 saw a decrease in global growth, mainly due to China’s economic slowdown resulting from a struggling property sector.
- The U.S. economy exhibited stronger growth led by increased consumer spending.
- In Europe, growth was sustained by the service sector despite manufacturing contraction.
- Global bond yields and international oil prices have increased.
- Canadian Economic Landscape:
- A transition to weaker growth has started, influenced by the 0.2% contraction in output during Q2 2023.
- Factors contributing to this downturn include reduced consumption, a drop in housing activity, and widespread wildfires.
- Household credit growth slowed, given the ripple effects of increased interest rates.
- Final domestic demand rose by 1% in Q2, boosted by government expenditure and heightened business investment.
- Labour market tightness has started to diminish, but wage growth still hovers between 4% and 5%.
- Inflation Patterns:
- CPI inflation has shown fluctuations, dropping to 2.8% in June before climbing to 3.3% in July. A recent spike in gasoline prices may push it higher.
- Both year-over-year and three-month core inflation rates stand at approximately 3.5%, suggesting a lack of decline in underlying inflation.
Bank of Canada says the Governing Council has maintained the policy interest rate at 5% due to signs of stabilizing economic demand and the effects of past monetary decisions. Despite this, concerns over sustained inflationary pressures persist. The Council is ready to adjust the rate if required and is keenly monitoring factors like wage growth and corporate pricing to ensure they align with the 2% inflation target.
