The Bank of Canada (BoC) leaves interest rates unchanged at 5% for the sixth consecutive meeting

He Bank of Canada (BoC) announced this Wednesday that it maintains its interest rates at 5% for the sixth consecutive meetinga, as expected. The entity last changed its rates in July 2023, when it raised them 25 basis points to the current level.

Bank of Canada statement

The Bank of Canada today maintained its target for the overnight interest rate at 5%, the bank rate at 5.25% and the deposit rate at 5%. The bank continues with its quantitative adjustment policy.

The BoC expects the global economy to continue growing at a rate of around 3%, and inflation in most advanced economies to gradually decline. The U.S. economy has again proven stronger than expected, driven by resilient consumption and solid business and government spending. US GDP growth is expected to slow in the second half of this year, but will still be stronger than expected in January. The euro area is expected to gradually recover from the current weak growth. Global oil prices have risen, averaging around $5 higher than forecast in the January Monetary Policy Report (MPR). Since January, bond yields have risen but, with tighter corporate credit spreads and sharply higher equity markets, overall financial conditions have eased.

The entity has revised upwards its global GDP growth forecast to 2.75% in 2024 and around 3% in 2025 and 2026. Inflation continues to slow in most advanced economies, although progress will likely be bumpy. Inflation rates are expected to reach the central bank's targets in 2025.

In Canada, economic growth stalled in the second half of last year and the economy became oversupplied. A wide range of indicators suggest that labor market conditions continue to improve. Employment has grown more slowly than the working-age population and the unemployment rate has gradually increased, reaching 6.1% in March. There are some recent signs that wage pressures are easing.

Economic growth is expected to rebound in 2024. This largely reflects both strong population growth and a recovery in household spending. Residential investment is strengthening, responding to continued strong housing demand. The contribution to growth of government spending has also increased. Business investment is expected to gradually recover after considerable weakness in the second half of last year. The BoC expects exports to continue growing solidly until 2024.

In general, The BoC forecasts GDP growth of 1.5% in 2024, 2.2% in 2025 and 1.9% in 2026. The strengthening economy will gradually absorb excess supply through 2025 and into 2026.

CPI inflation slowed to 2.8% in February, and the easing of price pressures became more widespread across all goods and services. However, house price inflation remains very high, driven by growth in rental and mortgage interest costs. Core inflation measures, which had been hovering around 3.5%, slowed to just over 3% in February, and three-month annualized rates suggest downward momentum. The bank expects CPI inflation to approach 3% during the first half of this year, be below 2.5% in the second half, and reach the 2% inflation target in 2025.

Based on the outlook, the Governing Council decided to maintain the official interest rate at 5% and continue normalizing the bank's balance sheet. While inflation remains too high and risks remain, CPI and core inflation have declined further in recent months. The Council will look for evidence that this downward momentum continues. The Governing Council is particularly monitoring developments in core inflation and continues to focus on the balance between supply and demand in the economy, inflation expectations, wage growth and corporate price performance. The bank remains resolute in its commitment to restoring price stability for Canadians.