The Bank of Canada has decided to maintain its target for
the overnight rate at 5%, keeping the Bank Rate at 5¼% and the deposit rate at
5%. The Bank is continuing its policy of quantitative tightening.
Global Economic Outlook:
- The
global economy is slowing, and growth is expected to moderate further.
- Global
GDP growth is projected to be 2.9% this year, 2.3% in 2024, and 2.6% in
2025.
- The
composition of this growth outlook has shifted, with the US economy
proving stronger, while economic activity in China has been weaker than
expected.
- Inflation
has been easing in most economies due to supply bottlenecks resolving and
weaker demand.
- Oil
prices are higher than previously assumed, and geopolitical uncertainty
has risen due to the Israel-Gaza conflict.
Canada's Economic Situation:
- Past
interest rate increases are affecting economic activity and alleviating
price pressures in Canada.
- Consumption
has been subdued, with softer demand for housing, durable goods, and many
services.
- Weaker
demand and higher borrowing costs are impacting business investment.
- The
labor market is showing signs of easing job gains and reduced job
vacancies.
- Wage
pressures persist in a tight labor market.
- Indicators
suggest that supply and demand in the economy are approaching balance.
Economic Growth and Inflation:
- Economic
growth is expected to remain weak for the next year before increasing in
late 2024 and through 2025.
- CPI
inflation has been volatile in recent months, with higher interest rates
moderating inflation in many goods bought on credit.
- Inflation
in rent and housing costs remains high.
- Near-term
inflation expectations and corporate pricing behavior are normalizing
gradually.
- The
Bank's October projection expects CPI inflation to average about 3½%
through the middle of next year before gradually easing to 2% in 2025.
Bank's Decision:
- The
Bank has decided to hold the policy rate at 5% and continue normalizing
the balance sheet.
- However,
the Bank is concerned about slow progress towards price stability and
increased inflationary risks.
- The
Bank remains prepared to raise the rate further if necessary.
- The
focus remains on the balance between demand and supply in the economy,
inflation expectations, wage growth, and corporate pricing behavior.
In summary, the Bank of Canada has chosen to keep rates
steady at 5% due to concerns about the slow progress in achieving price
stability and increased inflation risks. The global economic slowdown and
ongoing inflation pressures are key factors influencing this decision.