Home Economy The Bank of Canada maintains interest rates: read the official statement

The Bank of Canada maintains interest rates: read the official statement

by SuperiorInvest

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The Bank of Canada today maintained its target for the overnight rate at five per cent, with the bank rate at 5.25 per cent and the deposit rate at five per cent. The bank continues its quantitative adjustment policy.

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Global economic growth continues to slow and inflation gradually declines in most economies. While growth in the United States has been stronger than expected, it is expected to slow in 2024, with consumer spending and business investment weakening. In the euro zone, the economy appears to be in a slight contraction. In China, low consumer confidence and political uncertainty will likely limit activity. Meanwhile, oil prices are about $10 per barrel lower than assumed in the October Monetary Policy Report (MPI). Financial conditions have eased, largely reversing the tightening that occurred last fall.

The bank now forecasts global GDP growth of 2.5 percent in 2024 and 2.75 percent in 2025, following the three percent pace in 2023. With weaker growth this year, rates are expected to Inflation rates in most advanced economies will decline slowly, reaching central banks’ goals in 2025.

In Canada, the economy has stagnated since mid-2023 and growth will likely remain near zero through the first quarter of 2024. Consumers have reduced spending in response to rising prices and interest rates, and investment business has contracted. With weak growth, supply has caught up with demand and the economy now appears to be operating with a modest oversupply. Labor market conditions have eased, with job vacancies returning to near pre-pandemic levels and new job creation at a slower pace than population growth. However, salaries continue to increase by four to five percent.

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Economic growth is expected to gradually strengthen towards mid-2024. In the second half of 2024, household spending is likely to rebound and exports and business investment should receive a boost from recovering external demand. Government spending contributes materially to growth throughout the year. Overall, the bank forecasts GDP growth of 0.8 percent in 2024 and 2.4 percent in 2025, virtually unchanged from its October projection.

CPI inflation ended the year at 3.4 percent. Housing costs remain the largest contributor to above-target inflation. The bank expects inflation to remain close to three percent during the first half of this year before gradually declining, returning to the two percent target in 2025. While the slowdown in demand is reducing price pressures in a broader number of CPI components and companies Although price behavior continues to normalize, basic inflation indicators do not show sustained falls.

Given the outlook, the Governing Council decided to maintain the official interest rate at five percent and continue normalizing the bank’s balance sheet. The board is still concerned about risks to the inflation outlook, particularly the persistence of core inflation. The Governing Council wants to see a further and sustained reduction in core inflation and continues to focus on the balance between supply and demand in the economy, inflation expectations, wage growth and business price performance. The bank remains resolute in its commitment to restoring price stability for Canadians.

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