As higher interest rates begin to bear fruit for the Bank of Canada, economists generally expect the central bank to hold its key interest rate next week.
For the first time since last March, the Bank of Canada should announce on Wednesday that it is maintaining its key rate, which is currently at 4.5%. In January, the Bank of Canada made its eighth straight rate hike and said it would pause to give the economy time to react to rising borrowing costs.
The central bank stressed that the pause was conditional, leaving the door open for further rate hikes if needed.
CIBC’s chief economics officer, Karyne Charbonneau, says the Bank of Canada is likely pleased with recent economic data, which shows a slowing economy and falling inflation. The central bank would likely stay on the sidelines for some time unless inflation turns out to be more rigid than expected, according to Ms.me Charbonneau.
Encouraging signs
Royce Mendes, managing director and head of macroeconomic strategy at Desjardins Group, also sees signs favorable to the status quo. “Our monitoring for the first quarter of 2023 now suggests that headline inflation might be slightly below the Bank of Canada’s January forecast. Core inflation is showing encouraging signs.
“Measures of recent trend underlying inflationary pressures now appear to be between 3% and 3.5%. Although the numbers tell a different story for our neighbors to the south, the restrained measures of core inflation in Canada have been less volatile lately. The Canadian data might therefore reflect a real trend,” continues Mr. Mendes.
The Desjardins economist also recalls that the Bank of Canada was expecting GDP growth of 1.3% in the fourth quarter of 2022, while private sector economists were forecasting even more marked growth. Rather, Statistics Canada data showed that GDP stagnated during this period.
In his view, it is therefore likely that the central bank will not raise rates next week. “As past rate hikes continue to trickle down to the economy, the likelihood that the monetary policy tightening cycle has come to an end in Canada will increase. This will be especially true if the economy falls into recession, as we expect. »
With The duty