As written by Sean Rankin
In a key decision on December 6, 2023, the Bank of Canada, under Governor Tiff Macklem, opted to keep the overnight interest rate steady at 5%. This move, aligning with the predictions of economists and market trends, comes in response to signs of a slowing economy and increasing unemployment rates.
While the Bank acknowledges a decrease in spending and price pressures due to current monetary policies, it remains vigilant against inflation. It has indicated a readiness to raise rates further if necessary, contingent on sustained easing in core inflation and other economic indicators like wage growth and corporate pricing behavior.
Economists had anticipated this hold on rate changes, and many predict potential rate reductions by spring 2024 if current economic trends persist. However, the Bank’s cautious approach, including the possibility of rate hikes, persists due to lingering concerns about inflation, especially with the CPI inflation easing to 3.1% in October.
Canada’s economy has shown signs of stalling, with minimal growth in consumption and business investment and an increase in the unemployment rate. The Bank notes that although government spending and new home construction have provided some boost, overall economic indicators suggest a lack of excess demand, which is helping to reduce inflationary pressures.
The Bank of Canada will announce its next interest rate decision on January 24, 2024, providing further insights into the economic and inflation outlook.
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