For the eighth consecutive meeting, the Bank of Canada opted to raise its overnight rate in face of persistently high inflation— this time, by 25 basis points— in line with expectations.
The central bank’s effective rate now sits at 4.5%, marking one of the sharpest and most aggressive tightening cycles in the bank’s history. With inflation sitting at 6.6% last month and the labour market at full employment by technical definition, some economists believe the Governor Tiff Macklem is surely going to tip Canada’s economy into a recession— if he hasn’t done so already.
“I’m still convinced we’re likely facing a recession this year and it will be all the deeper if the Bank of Canada continues this single-minded crusade,” warned Center for Future Work chief economist Jim Stanford earlier this week. Indeed, the Bank of Canada is expecting inflation will subside substantially this year to around 3% thanks to lower energy prices, easing of global supply chain bottlenecks, and the effects of higher interest rates. The bank forecasts to reach its 2% target range on inflation sometime in 2024.
Sponsored · Cambria Gold Mines
Policy makers estimate Canada’s economy expanded 3.6% in 2022, marking a modest improvement from October’s projections. However, in line with economists’ and consumers’ expectations, output is expected to flatline starting in the second half of 2023, before potentially picking up momentum by the end of the year. GDP growth is now forecast to sit at around 1% this year, and 2% in 2024. Going forward, the Bank of Canada said it will likely keep interest rates at 4.5% until the monetary impacts fully ripple through the economy.
“Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases,” read the bank’s policy statement. “Governing Council is prepared to increase the policy rate further if needed to return inflation to the 2% target, and remains resolute in its commitment to restoring price stability for Canadians.”
Information for this briefing was found via the Bank of Canada and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
