OTTAWA: The Bank of Canada left its key overnight interest rate on hold at 4.50% on Wednesday, as expected, becoming the first major central bank to do so ahead of an expected easing of high inflation. Nazar has suspended his fiscal austerity campaign.
Over the past year, the Canadian central bank has raised rates a total of 425 basis points eight times in a row to tame inflation, which peaked at 8.1% annualized last year and fell to 5.9% in January. Still about three times as much. Bank of Canada’s 2 percent target.
When the BoC last met to set policy in January, it announced a 25-basis-point hike and said it did not want to leave rates unchanged for a while to let previous hikes sink in. , as long as prices remain as sluggish as he expects.
“Overall, the latest data is in line with the Bank’s expectation that CPI inflation will ease to around 3% in the middle of the year,” it said in a statement.
The Canadian dollar fell as much as 0.3 percent on the day to a four-month low of 1.3794 per US dollar, or 72.50 US cents, after the announcement.
“It certainly looks like the bank is on hold,” said Doug Porter, chief economist at BMO Capital Markets. “We’re expecting them to be on hold for the rest of this year.”
In its statement, the BoC reiterated that it is “ready to raise the policy rate further if necessary to bring inflation back to the 2% target.”
A majority of 32 economists polled by JEE News last week said the central bank would likely keep rates on hold until the end of this year.
Ahead of the BoC’s policy announcement, money markets were fully pricing in another tightening until September. They trimmed their bets to a 90% chance for a September hike after the decision.
“Risks are still tilted towards the Bank of Canada not being done and maybe depending on the data it will have to pull back,” said Derek Holt, vice-president of capital markets economics at Scotiabank.
Weak economic growth
Although some economic data has been particularly strong since the last policy meeting, including a blockbuster January jobs report, gross domestic product stagnated in the fourth quarter — well below the BoC’s forecast of 1.3 percent annual growth. is more weak.
In its statement, the central bank acknowledged that fourth-quarter growth fell short of its expectations, and dropped language saying the economy was in “excessive demand,” the two-point line it used when announcing the January rate hike. The bar was used.
“Constrictive fiscal policy continues to weigh on domestic spending,” the statement said. “With weaker economic growth for the next two quarters, pressures on product and labor markets are expected to ease.”
The central bank said core inflation measures and short-term inflation expectations still need to be cut to bring inflation back to target. The BoC expects near-zero growth in the first three quarters of 2023.
“The Bank of Canada’s conditional commitment to hold rates will put a magnifying glass on the divergence in monetary policy with the U.S. Federal Reserve,” said Royce Mendes, head of macro strategy at Desjardins.
The Fed’s benchmark overnight interest rate is currently in the range of 4.50%-4.75%. Due to recent upbeat economic and inflation data, some investors are now betting that the policy rate will be 6% or higher in the United States.
No speech or news conference was scheduled after the BoC’s policy decision on Wednesday. BoC Senior Deputy Governor Caroline Rogers will deliver a speech titled “Economic Development Report” and take questions from the media in Winnipeg on Thursday.
Minutes of this week’s meeting are due to be published on March 22.
