The Bank of Canada announced is maintaining its overnight interest rate at 5%, with the bank rate at 5.25% and the deposit rate at 5%.
The Wednesday announcement marks the sixth consecutive decision to keep the rate steady at 5% since July 2023 as the central bank continues its policy of quantitative tightening.
“The bank expects the global economy to continue growing at a rate of about 3%, with inflation in most advanced economies easing gradually,” read the central bank’s news release.
The Bank of Canada noted that once again, the U.S. economy proved stronger than anticipated and it’s predicting that the eurozone will gradually recover from its current state of weak growth.
“Global oil prices have moved up, averaging about $5 higher than assumed in the January Monetary PolicyReport. Since January, bond yields have increased but, with narrower corporate credit spreads and sharply higher equity markets, overall financial conditions have eased,” the release said.
“The bank has revised up its forecast for global GDP growth to 2.75% in 2024 and about 3% in 2025 and 2026. Inflation continues to slow across most advanced economies, although progress will likely be bumpy. Inflation rates are projected to reach central bank targets in 2025.”
Economic growth stalled in Canada during the second half of last year, which moved the economy into excess supply.
According to the central bank, a “broad range of indicators suggest that labour market conditions continue to ease” however, employment has been slower to grow and remains outpaced by the working-age population.
Unemployment has continued to increase gradually, reaching 6.1% last month but some signs are indicating that wage pressures are moderating.
The Bank of Canada is forecasting a boost in economic growth this year as well as some recovery in household spending.
“Residential investment is strengthening, responding to continued robust demand for housing. The contribution to growth from spending by governments has also increased,” read the announcement. “Business investment is projected to recover gradually after considerable weakness in the second half of last year. The bank expects exports to continue to grow solidly through 2024.”
The bank is predicting a GDP growth of 1.5% this year and 2.2% next year, saying that the “strengthening economy will gradually absorb excess supply through 2025 and into 2026.”
Inflation slowed to 2.8% in February, according to the Consumer Price Index, with pressure on prices easing across goods and services.
However, shelter price inflation continues to remain very high, as Canada’s population continues to grow dramatically and rent and mortgage costs have increased.
“Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum,” reads the release. “The bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
Based on these factors the governing council of the Bank of Canada decided to maintain its policy rate at 5%. While inflation is still too high and remains a risk for economic stability, the CPI and core inflation have eased over the past several months.
