On January 25, the Bank of Canada (BoC) announced to increase its key interest rate by 0.25 percentage points to 4.5%, marking the 8th consecutive interest rate hike. However, the BoC also said it might not raise interest rates any further.
According to the Vietnam News Agency correspondent in Canada, this country has become the first developed economy to announce that it will pause tightening monetary policy.
If materialized, this move by the BoC would mark a turning point for the central bank. Over the past year, the BoC has pushed up borrowing costs to combat inflation, but now that inflationary pressures have eased and the economy is slowing, the BoC emphasizes that interest rates may already be as high as they need to be. set.
The institution forecasts inflation will fall to regarding 3% by the middle of this year, gradually lower to 2.6% in the fourth quarter of 2023, and return to the target of 2% by 2024.
Canada’s inflation rate stood at 6.3% in December 2022, down sharply from its peak of 8.1% in June 2022, thanks to a range of factors such as falling oil prices, improvements in global supply and the impact of interest rate hikes on the economy. Lower inflation is expected to be accompanied by weakness in the Canadian economy.
The BoC forecasts growth will be flat in the first half of 2023, as higher borrowing costs will squeeze people’s finances and affect consumer spending and business investment, leaving Canada facing a new challenge. likely to experience several quarters of negative growth.
[Lạm phát leo thang, niềm tin kinh doanh và tiêu dùng ở Canada suy yếu]
So far, the background Canadian economy demonstrated better-than-expected resilience. Unemployment is near record lows and consumer spending remains relatively solid. But more and more evidence shows that monetary policy economic activity is slowing down.
Higher interest rates have dealt a heavy blow to the housing market in 2022, and consumers have begun cutting back on spending on luxury items. The BoC forecasts spending will continue to decelerate as homeowners extend their mortgages with higher interest rates and consumers reduce purchases of non-essentials.
However, the BoC also warned of potential pressures that might increase inflation, “over-demand”, typically in the labor market, or the possibility of a stronger-than-expected increase in oil prices, depending on developments. of the conflict between Russia and Ukraine and China’s reopening of its economy.
Huong Giang (VNA/Vietnam+)
