The Bank of Canada has decided to maintain its target for the overnight rate at 5%, alongside the Bank Rate at 5¼% and the deposit rate at 5%. Additionally, the Bank will continue its strategy of quantitative tightening.
In terms of the global economic landscape, advanced economies are witnessing a decrease in inflation rates, but core inflation remains relatively high. Major central banks worldwide are committed to stabilizing prices. On a global scale, the second quarter of 2023 saw a slowdown in growth, primarily due to a significant deceleration in China’s economy. Weakness in the property sector in China has had a negative impact on confidence and growth prospects. In the United States, robust consumer spending led to stronger-than-expected growth, while Europe benefited from a resilient service sector despite a manufacturing decline. Global bond yields have risen, reflecting higher real interest rates, and international oil prices are higher than initially projected.
Within Canada, the economy is experiencing a period of slower growth, which is necessary to alleviate inflationary pressures. In the second quarter of 2023, economic growth contracted by 0.2% annually due to weakened consumption and housing activity, as well as the effects of wildfires across the country. Higher interest rates have tempered household spending, and the tight labor market has gradually eased. Wage growth has remained around 4% to 5%.
Inflationary pressures continue to be widespread, with CPI inflation hovering around 3% and core inflation measures at about 3.5%. The Bank is concerned about persistent inflationary pressures and is prepared to further raise interest rates if necessary. It will closely monitor core inflation dynamics, inflation expectations, wage growth, and corporate pricing behavior to ensure alignment with its 2% inflation target.
The Bank of Canada remains committed to restoring price stability for Canadians and will announce its next steps on October 25, 2023.
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