Today, the Bank of Canada had their scheduled press release to announce their decision on interest rates and discuss the Canadian economy. In this blog post, we will delve into the essential highlights of the Bank of Canada’s recent announcement, examining its impact on businesses, consumers, and the broader economic landscape.
Increasing the Interest Rate
A focal point of the Bank of Canada’s announcement was its decision regarding the benchmark interest rate. The central bank’s interest rate directly affects borrowing costs for businesses and consumers, making it a critical tool for managing economic growth and inflation. In its June 7 announcement, the Bank of Canada opted to increase the interest rate by 25 basis points bringing the current prime rate to 6.95% and the overnight rate to 4.75%.
The Bank of Canada’s announcement also provided valuable insights into its assessment of the country’s economic outlook and recovery progress.
- Inflation and Price Pressures: Globally, consumer price inflation is coming down, largely reflecting lower energy prices compared to a year ago, but underlying inflation remains stubbornly high
- Economic Growth: While economic growth around the world is softening in the face of higher interest rates, major central banks are signaling that interest rates may have to rise further to restore price stability. Canada’s economy was stronger than expected in the first quarter of 2023, with GDP growth of 3.1%. Consumption growth was surprisingly strong and broad-based, even after accounting for the boost from population gains.
- Labour Market Conditions: The labour market remains tight: higher immigration and participation rates are expanding the supply of workers but new workers have been quickly hired, reflecting continued strong demand for labour.
Policy Measures and Forward Guidance
- Quantitative Easing (QE) Program: Quantitative tightening is complementing the restrictive stance of monetary policy and normalizing the Bank’s balance sheet.
- Interest Rate Outlook: Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. The Bank remains resolute in its commitment to restoring price stability and interest rates for Canadians
The next scheduled date for announcing the overnight rate target is July 12, 2023. If you have any questions on today’s Bank of Canada Announcement, please reach out to our team!