Bank of Canada Maintains Overnight Rate

The Bank of Canada today decided to leave the overnight lending rate unchanged at 4.5% and signalled a continuation of quantitative tightening.

According to the Bank’s April Monetary Policy Report (MPR), global economic growth has been stronger than anticipated, but it is expected to weaken as tighter monetary policy continues to feed through the economies of the United States and Europe. The report projects global growth of 2.6% this year, 2.1% in 2024, and 2.8% in 2025.

In Canada, the economy is experiencing strong demand and a tight labour market, but consumption is expected to moderate this year as more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly. 

Overall, GDP growth is projected to be weak through the remainder of this year before strengthening gradually next year. The Bank now projects Canada’s economy to grow by 1.4% this year and 1.3% in 2024 before picking up to 2.5% in 2025.

Inflation in Canada decreased to 5.2% in February, down from 5.9% in January. The central bank expects the Consumer Price Index to fall to around 3% in mid-2023 and then decline to its target of 2% by the end of 2024. 

However, it noted in a statement, "Getting inflation the rest of the way back to 2% 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."

Bank of Canada maintains policy rate, continues quantitative tighteninghttps://t.co/XUHsm8rLjA#economy #cdnecon

— Bank of Canada (@bankofcanada) April 12, 2023

Despite its decision to hold the overnight rate, the Governing Council said it remains prepared to raise the policy rate further if needed to achieve the 2% inflation target.

The next scheduled overnight rate announcement is June 7. We will continue to provide updates on these developments as they unfold.

US Inflation Print

Also today, the US Bureau of Labor Statistics reported that CPI inflation declined to 5% in March, down from 6% in February. The reading came in below the market expectation of 5.2% and it was the lowest rise in almost two years. 

The annual Core CPI, which excludes volatile food and energy prices, increased to 5.6%, a monthly increase of 0.4%.

As always, if you have any questions about today’s Market Update, you can call us at 604-643-0101 or email cashgroup@cgf.com