The Bank of Canada on Wednesday kept interest rates unchanged, and said it continues its policy of quantitative tightening.
The target for the overnight rate was maintained at 5%, with the bank rate at 5.25% and the deposit rate at 5%.
“The global economy continues to slow and inflation has eased further,” the central bank said in a statement. “In Canada, economic growth stalled through the middle quarters of 2023. Real GDP contracted at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter.”
The bank said oil prices are about $10 per barrel lower than was assumed in its Monetary Policy Report in October, adding that financial conditions have also eased, while the US dollar has weakened against most currencies, including Canada’s.
“In the United States, growth has been stronger than expected, led by robust consumer spending, but is likely to weaken in the months ahead as past policy rate increases work their way through the economy. Growth in the euro area has weakened and,
combined with lower energy prices, this has reduced inflationary pressures,” it added.
The central bank said it is still concerned about risks to the outlook for inflation, and stressed that it is prepared to raise the policy rate further if needed.
The bank stressed that its Governing Council wants to see further and sustained easing in core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations and wage growth.
“In Canada, economic growth stalled through the middle quarters of 2023. Real GDP contracted at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter,” said the statement.
The Bank of Canada said higher interest rates “are clearly restraining spending,” adding that “consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year.”
Canada’s annual consumer inflation, slowed down to 3.1% in October from 3.8% in September, and down
from a 4% annual gain recorded in August, according to official figures.
“The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices. Combined with the drop in gasoline prices, this contributed to the easing of CPI inflation to 3.1% in October,” said the statement.
However, shelter price inflation has been on the rise, reflecting faster growth in rent and other housing costs, with a contribution from higher mortgage interest costs, according to the bank.
The labor market, meanwhile, continues to ease, as job creation has been slower than labor force growth, while job vacancies have declined further and the unemployment rate has risen only modestly, it said.
“Even so, wages are still rising by 4-5%. Overall, these data and indicators for the fourth quarter suggest the economy is no longer in excess demand,” the statement said.
Source: Anadolu Agency