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The Bank of Canada leaves interest rates at 5% for the third consecutive meeting

The Bank of Canada (BoC) announced this Wednesday, December 6, that keeps interest rates unchanged at 5% for third consecutive monetary policy meetingmeeting forecasts.

The BoC last raised its rates last July, when it increased interest by 25 basis points to the current 5%.

Bank of Canada statement

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

The global economy continues to slow and inflation has declined further. In the United States, growth has been stronger than expected, driven by strong consumer spending, but is likely to weaken in the coming months as previous policy interest rate increases make their way through the economy. . Growth in the Eurozone has weakened and, combined with lower energy prices, this has reduced inflationary pressures. Oil prices are about $10 per barrel lower than assumed in the October Monetary Policy Report. Financial conditions have also eased, and long-term interest rates have reduced some of the sharp increases seen earlier this fall. The US dollar has weakened against most currencies, including the Canadian one.

In Canada, economic growth stagnated until mid-2023. Real GDP contracted at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter. Higher interest rates are clearly constraining spending: consumption growth over the past two quarters was near zero, and business investment has been volatile but essentially stable over the past year. Exports and inventory adjustment detracted from GDP growth in the third quarter, while government spending and new home construction provided a boost. The labor market continues to relax: job creation has lagged behind labor force growth, job vacancies have declined further, and the unemployment rate has risen modestly. Even so, salaries continue to increase by 4% to 5%. Overall, these data and indicators for the fourth quarter suggest that the economy no longer has excess demand.

The slowdown in the economy is reducing inflationary pressures across an increasingly wide range of prices for goods and services. Combined with falling gasoline prices, this contributed to CPI inflation declining to 3.1% in October. However, house price inflation has picked up, reflecting faster growth in rents and other housing costs along with the continued contribution of high mortgage interest costs. In recent months, the BoC’s preferred core inflation measures have been around 3.5%-4%, with October’s data at the lower end of this range.

Faced with new signs that monetary policy is moderating spending and easing price pressures, the Governing Council decided to keep the policy rate at 5% and continue normalizing the BoC’s balance sheet. He Governing Council remains concerned about risks to the inflation outlook and remains prepared to raise the rate further if necessary. The Governing Council wants to see a further and sustained reduction in core inflation and continues to focus on the balance between supply and demand in the economy, inflation expectations, wage growth and business price performance . The Bank of Canada remains resolute in its commitment to restoring price stability for Canadians.

Source: Fx Street

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