Rates hold steady as the BoC focuses on inflation and global growth
The Bank of Canada (BoC) held the overnight rate at 5% today as it continues its policy of quantitative tightening.
The global economy and economic growth were at the forefront of the BoC’s statement. It confirms the global economy is slowing and growth is expected to moderate. The BoC confirms the current global growth outlook is little changed from July. Growth in the Eurozone continues to slow, however, the US economy is proving to be stronger than expected, and economic activity in China is proving to be weaker. The BoC expects global GDP growth to be 2.9% this year, 2.3% in 2024 and 2.6% in 2025.
There’s growing evidence that past rate increases are dampening economic activity and relieving price pressures in Canada. Although inflation has been easing in most economies, underlying inflation continues to persist. Therefore, central banks should continue to be cautious.
CIBC Capital Markets says today’s rate hold should come as no surprise to markets. With inflation still well above the target rate of 2%, the BoC is not yet willing to give up on the possibility of future rate hikes if prices don’t see enough cooling. Near-term inflation projections were raised as the BoC is willing to be patient when it comes to hiking rates as it waits for economic slack to bring inflation down to the target rate—likely in 2025. CIBC Capital Markets expect to see additional rate hikes ahead and a potential ease in rates as we approach mid-2024.
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