The Bank of Canada announced that it remains open to further tightening policies by keeping interest rates unchanged
溪客00
发表于 2023-10-26 14:30:02
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On Wednesday, the Bank of Canada held interest rates unchanged for the second time, but remained open to further tightening policies, even though officials predicted that economic growth would tend to weaken. The bank has decided to stabilize its benchmark overnight lending rate at 5%, the highest record in the past 22 years.
Market and economic scholars have long anticipated this pause in interest rate hikes, which is also the fourth time in the current interest rate cycle that the status quo has been maintained. During this cycle, interest rates have increased by 475 basis points.
There is increasing evidence that previous interest rate hikes have limited economic activity and reduced price increases, "the central bank of China said in a statement. Multiple data shows that the current economic supply and demand are close to equilibrium
Although the economy is expected to grow more slowly, policymakers still expect inflation to increase in the near future. They believe that core inflation has not stabilized yet, which is the main reason why they are still considering raising interest rates. Now, they predict an average inflation rate of 3% in 2024, which is higher than the 2.5% predicted in July.
In the accompanying monetary policy report, the official revised the GDP growth rate for the third quarter by nearly half to 0.8%. They also predicted an annual growth rate of 0.8% in the fourth quarter. In addition, they have lowered their growth forecast for this year from the original 1.2% to 0.9%.
They predicted that the economy would experience oversupply in the fourth quarter of 2023 and removed previous warnings about demand exceeding supply in their statement.
In the past year, Canada's average GDP growth was 1%, while per capita GDP actually decreased by 1.6%. The current output gap is estimated to be between -0.75% and 0.25%, indicating that economic pressure has been alleviated. It is expected that this gap will be fully closed by early 2024.
However, the balance of the economy has not slowed down inflation. It is expected that the consumer price index will remain at a relatively high level in the short term, with an average level of 3.5% by mid-2024. The Central Bank of China has once again postponed the achievement of the 2% inflation target.
Now they expect to achieve this goal in the second half of 2025, as previously predicted by mid-2025.
The Central Bank of China mentioned in its report that "progress towards achieving the 2% inflation target has been slow, while global inflation risks have increased, leading to increased risks of stagnation or even recovery.
The upward risks of inflation include households and businesses' expectations of inflation, an increase in extreme weather events, and geopolitical instability such as the conflict between Israel and Hamas.
The central bank stated that due to the rise in energy and housing prices, it is expected that this will be partially offset by excess demand, reduced cost pressures, and global commodity deflation... The sustained oversupply in the economy will reduce price increases, help lower inflation expectations, and encourage businesses to gradually return to normal pricing behavior.
The Central Bank of China hopes to see core inflation begin to decline and will continue to pay attention to the supply and demand of the economy, inflation expectations, wage growth, and pricing behavior of enterprises.
Compared to the United States, Canadian households have higher average debt, and their short-term mortgage loans are also made more frequently. That's why Canada is more sensitive to high interest rates, and one reason why the Bank of Canada announced in January that it would stop raising interest rates before the Federal Reserve.
The next decision of the Bank of Canada will be announced on December 6th, with the release of two employment data, inflation data for October and GDP data for the third quarter.
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