Bank of Canada Rate Announcement - October 23, 2023
October 25, 2023 | Posted by: Ken Fadel
As was widely expected, the BoC announced this morning that its target for the overnight rate is remains unchanged at 5%.
The BoC noted the global economy is slowing and that growth is forecast to moderate further as past rate increases and recent surges in bond yields weigh on demand. The Bank’s projections for global GDP growth are little changed from those stated in July, with higher US growth making up for some of the weakness in China. Inflation has been easing across most of the globe, as supply issues resolve, and weaker consumer demand relieves price pressures. However, oil prices are higher than originally anticipated, and the war in Israel and Gaza is a new source of geopolitical risk.
In Canada there is growing evidence that past interest rate hikes increases are impacting economic activity and easing price pressures. Demand for housing, durable goods and many services have softened as borrowing costs have soared. Overall, the BoC expects the domestic economy to grow 1.2% this year, 0.9% in 2024 and the pick back up in 2025 to 2.5%.
CPI inflation has been quite unpredictable in recent months—2.8% in June, 4.0% in August, and 3.8% in September. Higher interest rates have muted price increases for most goods typically purchased using credit. Food inflation while still high, has dropped from previous highs. However mortgage interest costs, inflation in rent and other housing costs remains very high. Core inflation remains sticky and above the BoC target. CPI inflation is now expected to remain around 3.5% until the middle of 2024 before slowly dropping to the 2% range in 2025.
Despite the decision to keep rates unchanged, the BoC reiterated is commitment to restoring price stability for Canadians. The Bank remains prepared to raise the policy rate further if necessary to maintain the desired downward momentum in core inflation.
The Bank’s last policy rate announcement for 2023 is scheduled for December 6th.