Bank of Canada leaves The benchmark interest rate was set at 5% on Wednesday, but further hikes appear to be on the table amid the economic slowdown. Wednesday’s decision was widely expected among economists. This is the fourth consecutive holding by the central bank.
The central bank removed language from its previous interest rate decision stating that it was prepared to raise interest rates if necessary.
The Bank of Canada said it remains concerned about risks to the price outlook, particularly the robustness of core inflation measures. It forecasts that economic growth is likely to remain below 1% through the first quarter of 2024.
“The board wants further sustained easing of core inflation and remains focused on the economy’s supply-demand balance, inflation expectations, wage growth and corporate pricing behavior,” the central bank said. .
Avery Shenfeld, chief economist at CIBC, said the Bank of Canada “has signaled that interest rate cuts will begin later this year” and economic growth is expected to pick up in the second half of 2024.
“The statement removes previous reference to the possibility of needing to raise interest rates if inflation does not cool, saying we remain ‘concerned’ about the persistence of core inflation,” Schenfeld said in a note to clients on Wednesday. The comment was changed to a less hawkish one.” “While this is a dovish trend, it is still consistent with our call for a first rate cut in June, bringing the rate cut to 150 basis points this year.”
Canada’s consumer price index rose to 3.4 per cent in December, according to Statistics Canada. The central bank’s inflation target is in the middle of a range of 1-3%.
The Bank of Canada’s Economic Outlook Survey last week showed that companies’ “pricing behavior is gradually returning to normal” as a result of higher interest rates. The report also warned of “unfavorable business conditions,” stating that “high interest rates are having a negative impact on the majority of companies.”
Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers will speak at a press conference starting at 10:30 a.m. ET. Wednesday’s rate decision is the first under the bank’s new communications plan announced in December. The bank says it will hold a press conference every time it announces interest rates.
This will continue in the future.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.