Paused for more thought
Bank of Canada keeps its policy interest rate at 4.5%
By Rob Roach, ATB Economics 12 April 2023 1 min read
For the second time in a row, the Bank of Canada has announced* it is keeping its trendsetting policy interest rate at 4.5%.
With the Canadian economy performing better than the Bank expected to start the year and fears of a hard landing being stoked by the recent troubles in the US and Swiss banking sectors, the Bank of Canada is caught between a rock and a hard place when it comes to interest rates.
If the Bank raises rates even more in an effort to make sure inflation gets back to its target range sooner than later, it risks the aforementioned hard landing.
If it lowers rates to give the economy a boost, inflation could fail to keep coming down or even go back up.
Rather than pick one of these options, the Bank has decided to continue to wait and see before adjusting the policy rate.
According to the Bank’s latest forecast, GDP growth in Canada “is projected to be weak through the remainder of this year before strengthening gradually next year.“
The Bank also “expects CPI inflation to fall quickly to around 3% in the middle of this year and then decline more gradually to the 2% target by the end of 2024.”
“However, getting inflation the rest of the way back to 2% could prove to be more difficult because inflation expectations are coming down slowly, service price inflation and wage growth remain elevated, and corporate pricing behaviour has yet to normalize.”
Looking ahead, the Bank says it will continue “to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target.”
*Each year, the Bank of Canada sets eight fixed dates on which it announces whether or not it will change its policy interest rate. The next announcement is scheduled for June 7, 2023.
Answer to the previous trivia question: According to Natural Resources Canada, there are more than 840,000 km of oil and gas transmission, gathering and distribution pipelines in Canada.
Today’s trivia question: The $5 bill (a.k.a. bank note) will soon be featuring a new portrait selected from a short list of eight candidates. Whose portrait is on the current $5 bill?