The Bank of Canada on October 25, 2023 held its target for the overnight rate at 5 percent, with the Bank Rate at 5.25 percent and the deposit rate at 5 percent. The bank is continuing its policy of quantitative tightening.
The global economy is slowing and growth is forecast to moderate further as past increases in policy rates and the recent surge in global bond yields weigh on demand. The bank projects global GDP growth of 2.9 percent this year, 2.3 percent in 2024 and 2.6 percent in 2025. While this global growth outlook is little changed from the July Monetary Policy Report (MPR), the composition has shifted, with the US economy proving stronger and economic activity in China weaker than expected. Growth in the euro area has slowed further. Inflation has been easing in most economies, as supply bottlenecks resolve and weaker demand relieves price pressures. However, with underlying inflation persisting, central banks continue to be vigilant. Oil prices are higher than was assumed in July.
CPI inflation has been volatile in recent months—2.8 percent in June, 4.0 percent in August, and 3.8 percent in September. Higher interest rates are moderating inflation in many goods that people buy on credit, and this is spreading to services. Food inflation is easing from very high rates. However, in addition to elevated mortgage interest costs, inflation in rent and other housing costs remains high. Near-term inflation expectations and corporate pricing behavior is normalizing only gradually, and wages are still growing around 4 percent to 5 percent. The bank’s preferred measures of core inflation show little downward momentum.
In the bank’s October projection, CPI inflation is expected to average about 3.50 percent through the middle of next year before gradually easing to 2 percent in 2025. Inflation returns to target about the same time as in the July projection, but the near-term path is higher because of energy prices and ongoing persistence in core inflation.
With clearer signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5 percent and to continue to normalize the bank’s balance sheet. However, Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed. Governing Council wants to see downward momentum in core inflation, and continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behavior. The bank remains resolute in its commitment to restoring price stability for Canadians. https://shorturl.at/bkFQ6
Source: IBP