This morning, the Bank of Canada announced that they have maintained its key interest rate. The prime rate will remain the same at 7.20%. Therefore, for those who have a variable rate credit product, there will be no changes for payments.
Global economic growth is slowing down, and inflation is gradually decreasing in most countries. In the US, although growth has been better than expected, it's expected to slow this year due to reduced consumer spending and business investment. The Bank predicts global GDP growth of 2.5% in 2024, following the 3% pace in 2023. Due to softer growth, inflation rates are expected to gradually come down, reaching central bank targets by 2025.
In Canada, the economy stalled since mid-2023, and growth is expected to stay close to zero through Q1 of 2024. Consumers have cut back spending due to higher prices and interest rates. With weak growth, supply has caught up with demand, leading to a modest excess supply in the economy. Job market conditions have eased, with job vacancies returning to pre-pandemic levels, and new jobs are being created at a slower rate than population growth.
CPI inflation ended the year at 3.4%, with shelter costs being the main contributor. The Bank expects inflation to remain close to 3% during the first half of 2024 before gradually easing and returning to the 2% target in 2025.
Based on this recent data, the Governing Council has decided to hold the rate. The Council remains concerned about risks to the inflation outlook, particularly persistence in underlying inflation. The dynamics of core inflation and the outlook for CPI inflation will continue to be assessed, and the Bank is prepared to increase rates further if needed. The focus continues to be on achieving a balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains committed to restoring price stability for Canadians and achieving the 2% inflation target.
The next Bank of Canada announcement will be on March 6, 2024.
If you'd like to learn more about this recent announcement or would like to know how this affects you, please feel free to reach out to us and we'd be happy to help!