The Bank of Canada held its overnight lending rate steady at 5% on Wednesday in Ottawa. The move, which was expected by economists in a Bloomberg survey, leaves borrowing costs at their highest in 22 years. Here are the key takeaways:
- Policymakers led by Governor Tiff Macklem reiterated their willingness to hike again if needed to bring inflation back to the 2% target, saying the central bank “remains concerned about the persistence” of underlying price pressures. Evidence that excess demand is easing and the lagging effects of previous hikes drove their decision to leave rates unchanged.
- Officials said the Canadian economy has geared down significantly, pinning a surprise contraction in second-quarter gross domestic product on “a marked weakening in consumption growth,” a slower housing market and the impact of wildfires across the country. The labor market is easing gradually but wage growth remains high.
- Rising gasoline prices mean “inflation is expected to be higher in the near term before easing again,” the bank said, noting that yearly and three-month measures of underlying pressures show “little recent downward momentum.” July’s jump in the headline annual rate to 3.3% was still in line with bank projections.
- Globally, the bank flagged a significant slowdown in China as a key factor in a weaker growth outlook. The US economy is stronger than expected on consumer spending, and global bond yields are up due to higher real interest rates and oil-price gains.
- Macklem and his officials left the last three sentences of their one-page rate statement unchanged. They “will continue to assess the dynamics of core inflation and the outlook for CPI,” paying particular mind to the evolution of evolution of excess demand, inflation expectations, wage growth and corporate pricing behavior. “The bank remains resolute in its commitment to restoring price stability.”
(Bloomberg) — ©2023 Bloomberg L.P.