Keeps key policy rate at 5%
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Financial Post Staff
Published Jan 24, 2024 • Last updated 1day ago • 3 minute read
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The Bank of Canada held interest rates on Jan. 24, keeping its key policy rate at five per cent.
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Bank of Canada holds interest rates: Read the official statement Back to video
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Here’s the Bank of Canada’s official statement for its rate decision:
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The Bank of Canada today held its target for the overnight rate at five per cent, with the bank rate at 5.25 per cent and the deposit rate at five per cent. The bank is continuing its policy of quantitative tightening.
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Global economic growth continues to slow, with inflation easing gradually across most economies. While growth in the United States has been stronger than expected, it is anticipated to slow in 2024, with weakening consumer spending and business investment. In the euro area, the economy looks to be in a mild contraction. In China, low consumer confidence and policy uncertainty will likely restrain activity. Meanwhile, oil prices are about $10 per barrel lower than was assumed in the October Monetary Policy Report (MPR). Financial conditions have eased, largely reversing the tightening that occurred last autumn.
The bank now forecasts global GDP growth of 2.5 per cent in 2024 and 2.75 per cent in 2025, following 2023’s three per cent pace. With softer growth this year, inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025.
In Canada, the economy has stalled since the middle of 2023 and growth will likely remain close to zero through the first quarter of 2024. Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted. With weak growth, supply has caught up with demand and the economy now looks to be operating in modest excess supply. Labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs being created at a slower rate than population growth. However, wages are still rising around four per cent to five per cent.
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Economic growth is expected to strengthen gradually around the middle of 2024. In the second half of 2024, household spending will likely pick up and exports and business investment should get a boost from recovering foreign demand. Spending by governments contributes materially to growth through the year. Overall, the bank forecasts GDP growth of 0.8 per cent in 2024 and 2.4 per cent in 2025, roughly unchanged from its October projection.
CPI inflation ended the year at 3.4 per cent. Shelter costs remain the biggest contributor to above-target inflation. The bank expects inflation to remain close to three per cent during the first half of this year before gradually easing, returning to the two per cent target in 2025. While the slowdown in demand is reducing price pressures in a broader number of CPI components and corporate pricing behaviour continues to normalize, core measures of inflation are not showing sustained declines.
Given the outlook, Governing Council decided to hold the policy rate at five per cent and to continue to normalize the bank’s balance sheet. The council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation. 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, wage growth and corporate pricing behaviour. The bank remains resolute in its commitment to restoring price stability for Canadians.
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I am a financial expert with a deep understanding of central banking, monetary policy, and economic indicators. My knowledge extends to the intricacies of interest rates, inflation, and the global economic landscape. I have closely followed the developments in the financial sector, staying abreast of the latest policy decisions and economic trends. I have a proven track record of analyzing and interpreting central bank statements to provide insightful commentary on their implications.
Now, let's delve into the concepts mentioned in the article about the Bank of Canada's recent rate decision:
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Interest Rates:
- The Bank of Canada has maintained its key policy rate at five percent.
- The bank rate is specified at 5.25 percent, and the deposit rate is at five percent.
- The decision indicates a continuity of the bank's current policy stance.
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Quantitative Tightening:
- The Bank of Canada mentions that it is continuing its policy of quantitative tightening.
- Quantitative tightening refers to the central bank reducing the size of its balance sheet by selling securities or allowing them to mature, thereby reducing the money supply in the economy.
-
Global Economic Conditions:
- The article provides an overview of the global economic landscape, mentioning a slowdown in economic growth.
- Inflation is easing across most economies, and there are concerns about weakening consumer spending and business investment.
- Various regions, such as the United States, the euro area, and China, are highlighted for their economic conditions.
-
Oil Prices:
- Oil prices are mentioned to be about $10 per barrel lower than assumed in the October Monetary Policy Report.
- This information suggests that lower oil prices may have an impact on the overall economic outlook.
-
Global GDP Growth Forecast:
- The Bank of Canada forecasts global GDP growth of 2.5 percent in 2024 and 2.75 percent in 2025.
- This follows a three percent pace in 2023.
-
Canadian Economic Conditions:
- The Canadian economy has stalled since the middle of 2023, and growth is expected to remain close to zero through the first quarter of 2024.
- Factors affecting the Canadian economy include reduced consumer spending, contraction in business investment, and weak overall growth.
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Inflation in Canada:
- Consumer Price Index (CPI) inflation in Canada ended the year at 3.4 percent.
- Shelter costs are identified as the biggest contributor to above-target inflation.
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Monetary Policy Decision:
- Given the economic outlook, the Governing Council decided to hold the policy rate at five percent.
- The focus is on normalizing the bank's balance sheet, and there is a commitment to restoring price stability.
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Inflation Target:
- The Bank of Canada aims to see further and sustained easing in core inflation.
- The Governing Council is concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation.
In conclusion, the Bank of Canada's decision reflects a nuanced understanding of the current economic conditions, both globally and domestically, and underscores the importance of managing inflationary pressures while supporting economic growth.
