Reuters reported that the Bank of Canada might hold its key interest rate steady this week. This can be possible because inflation continues to slow, despite several other data suggesting that the economy is still running well. On Wednesday, the central bank is to announce the bank’s next interest rate decision. Updated economic projections shall accompany the announcement. This is for growth and inflation in the quarterly monetary policy report.
BMO’s chief economist Douglas Porter said that though the economy is still growing faster than expected, lower-than-anticipated inflation shall convince the BoC (Bank of Canada) to hold its main interest rate at 4.5 percent. Douglas Porter said, combining all these, it looks like the bank is supposed to hold rates steady for now.
Now, for some months, the economic data that the Bank of Canada relies on for interest rate decisions sent several mixed signals about the state of the economy. So far this year, growth, development, and job numbers are stronger than anticipated, even as the BoC’s major interest rate sits at its highest level since 2007.
After a slight contraction in December, the real gross domestic product grew by 0.5 percent in January. The preliminary estimate of Statistics Canada suggests that the economy had grown again in February by 0.3 percent. Karyne Charbonneau, CIBC’s executive director of economics, said a close look at the economic growth numbers shows there may not be much cause for concern.
The economy of Canada at the present
In the meantime, businesses now keep hiring. In March month, the Canadian economy added 35,000 job opportunities. This increased the number of jobs gained over the last six months to almost 350,000. The unemployment rate is steady at 5 percent for the 4th consecutive month. That is above the all-time low of 4.9 percent reached in the summer. But, this strength in the economy is not what the BoC wanted to see, lower inflation is good news.
In February, the country’s annual inflation rate had fallen to 5.2 percent. This marked the 2nd month in which inflation came in lower than forecasted. The slowdown in all inflation now comes as supply chains recover and commodity prices are moderate. The month-over-month inflation data now shows inflation is tracking closer to the BoC’s inflation target of 2 percent.
A rapid rise in prices occurred in the 1st half of 2022. The country’s inflation rate is anticipated to fall in 2023. Most economists forecast it will fall to about 3 percent in the middle of the year. The BoC does not plan to raise interest rates further until inflation continues to fall as anticipated. The bank declared a conditional stop on rate hikes earlier this year. However, if required, it has kept the door open for more rate hikes.
The BoC appears optimistic that the bank’s aggressive rate hikes in March 2022 and January 2023 shall be forceful in quelling inflation. The bank saw its major interest rate rise from about zero to the highest that it has been since the year 2007. Recently, surveys conducted by the BoC have shown that consumers and businesses are gearing up for a slowdown. Consumers reported their plans to reduce travel and restaurant outings to save money. In the meantime, the businesses expect their sales to slow. And, though the labor shortages were still a major concern for businesses, the survey found several signs that both the labor market and wage growth were easing.