The Bank of Canada once again decided to maintain its target for the overnight lending rate at 4.5% while continuing its policy of quantitative tightening.
The Bank indicated that global economic growth has been stronger than expected but will weaken due to tightening monetary policy in many countries. The Bank made special note of an expected slowdown in US sectors that will have an impact on Canadian exports.
According to the Bank, first quarter economic growth in Canada exceeded expectations, adding that labour shortages are starting to ease due to strong population growth. The Bank noted that housing activity remains subdued and consumer spending is expected to moderate as more households renew their mortgage at higher rates. The Bank projects Canadian GDP growth of 1.4% in 2023, 1.3% in 2024, and 2.5% in 2025.
The Bank expects CPI inflation to moderate to around 3% by the middle of 2023 and continue to decline to its 2% target by the end of 2024. However, the Bank noted that service price inflation and wage growth as two risks to its inflation projections that could provide some difficulty in reaching its target and remains prepared to raise the policy rate further if needed to return to its target.
The Bank of Canada’s next scheduled interest rate announcement will be on June 7, 2023. The Bank will publish its next Monetary Policy Report on July 12, 2023.
