Bank of Canada Governor Tiff Macklem waits to appear before the Finance committee, Thursday, February 16, 2023 in Ottawa. The Bank of Canada kept its key interest rate target on hold at 4.5 per cent on Wednesday. THE CANADIAN PRESS/Adrian Wyld
OTTAWA – The Bank of Canada kept its key interest rate target on hold at 4.5 per cent on Wednesday. Here is the text of the central bank’s rate announcement:
The Bank of Canada today held its target for the overnight rate at 4.5 per cent, with the Bank Rate at 4.75 per cent and the deposit rate at 4.5 per cent. The Bank is also continuing its policy of quantitative tightening.
Inflation in many countries is easing in the face of lower energy prices, normalizing global supply chains, and tighter monetary policy. At the same time, labour markets remain tight and measures of core inflation in many advanced economies suggest persistent price pressures, especially for services.
Global economic growth has been stronger than anticipated. Growth in the United States and Europe has surprised on the upside, but is expected to weaken as tighter monetary policy continues to feed through those economies. In the United States, recent stress in the banking sector has tightened credit conditions further. U.S. growth is expected to slow considerably in the coming months, with particular weakness in sectors that are important for Canadian exports. Meanwhile, activity in China’s economy has rebounded, particularly in services. Overall, commodity prices are close to their January levels. The Bank’s April Monetary Policy Report (MPR) projects global growth of 2.6 per cent this year, 2.1 per cent in 2024, and 2.8 per cent in 2025.
In Canada, demand is still exceeding supply and the labour market remains tight. Economic growth in the first quarter looks to be stronger than was projected in January, with a bounce in exports and solid consumption growth. While the Bank’s Business Outlook Survey suggests acute labour shortages are starting to ease, wage growth is still elevated relative to productivity growth. Strong population gains are adding to labour supply and supporting employment growth while also boosting aggregate consumption. Housing market activity remains subdued.
As more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption is expected to moderate this year. Softening foreign demand is expected to restrain exports and business investment. Overall, GDP growth is projected to be weak through the remainder of this year before strengthening gradually next year. This implies the economy will move into excess supply in the second half of this year. The Bank now projects Canada’s economy to grow by 1.4 per cent this year and 1.3 per cent in 2024 before picking up to 2.5 per cent in 2025.
CPI inflation eased to 5.2 per cent in February, and the Bank’s preferred measures of core inflation were just under five per cent. The Bank expects CPI inflation to fall quickly to around three per cent in the middle of this year and then decline more gradually to the two per cent target by the end of 2024. Recent data is reinforcing Governing Council’s confidence that inflation will continue to decline in the next few months. However, getting inflation the rest of the way back to two per cent could prove to be more difficult because inflation expectations are coming down slowly, service price inflation and wage growth remain elevated, and corporate pricing behaviour has yet to normalize. As it sets monetary policy, Governing Council will be particularly focused on these indicators, and the evolution of core inflation, to gauge the progress of CPI inflation back to target.
In light of its outlook for growth and inflation, Governing Council decided to maintain the policy rate at 4.5 per cent. Quantitative tightening continues to complement this restrictive stance. Governing Council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the two per cent target. The Bank remains resolute in its commitment to restoring price stability for Canadians.
This report by The Canadian Press was first published April 12, 2023.
