The Bank of Canada kept its key interest rate target on hold at five per cent on Wednesday.
Here is the text of the central bank’s decision:
The Bank of Canada today held its target for the overnight rate at five per cent, with the Bank Rate at 5.24 per cent and the deposit rate at five per cent. The Bank is continuing its policy of quantitative tightening.
The Bank expects the global economy to continue growing at a rate of about three per cent, with inflation in most advanced economies easing gradually. The U.S. economy has again proven stronger than anticipated, buoyed by resilient consumption and robust business and government spending. U.S. GDP growth is expected to slow in the second half of this year, but remain stronger than forecast in January. The euro area is projected to gradually recover from current weak growth. Global oil prices have moved up, averaging about $5 higher than assumed in the January Monetary Policy Report (MPR). Since January, bond yields have increased but, with narrower corporate credit spreads and sharply higher equity markets, overall financial conditions have eased.
The Bank has revised up its forecast for global GDP growth to 2.75 per cent in 2024 and about three per cent 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.
In Canada, economic growth stalled in the second half of last year and the economy moved into excess supply. A broad range of indicators suggest that labour market conditions continue to ease. Employment has been growing more slowly than the working-age population and the unemployment rate has risen gradually, reaching 6.1 per cent in March. There are some recent signs that wage pressures are moderating.
Economic growth is forecast to pick up in 2024. This largely reflects both strong population growth and a recovery in spending by households. Residential investment is strengthening, responding to continued robust demand for housing. The contribution to growth from spending by governments has also increased. 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.
Overall, the Bank forecasts GDP growth of 1.5 per cent in 2024, 2.2 per cent in 2025, and 1.9 per cent in 2026. The strengthening economy will gradually absorb excess supply through 2025 and into 2026.
CPI inflation slowed to 2.8 per cent in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs. Core measures of inflation, which had been running around 3.5 per cent, slowed to just over three per cent in February, and three-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to three per cent during the first half of this year, move below 2.5 per cent in the second half, and reach the two per cent inflation target in 2025.
Based on the outlook, Governing Council decided to hold the policy rate at five per cent and to continue to normalize the Bank’s balance sheet. While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. The Council will be looking for evidence that this downward momentum is sustained. Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.
This report by The Canadian Press was first published April 10, 2024.
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