The Bank of Canada announced it will keep its key interest rate at 5%, with the Bank Rate at 5¼%. This decision will keep the Bank’s prime lending rate at 7.2%.
The Governing Council of the Bank of Canada is still worried about risks to inflation and is ready to increase the interest rate further if necessary. They want to see a consistent decrease in core inflation. In the rate announcement, they also stated they are keeping an eye on the balance between supply and demand in the economy, inflation expectations, wage growth, and how businesses price their products. The Bank of Canada is committed to bringing stability to prices for Canadians.
Here’s the Global Breakdown
Globally, the economy is slowing down, and inflation is lower. The economy has been growing more than expected in the United States, mainly because people are spending a lot. However, this growth is expected to slow down in the coming months due to previous increases in interest rates. Economic growth has weakened in Europe, and lower energy prices have lowered inflation. The US dollar has also weakened compared to other currencies, including the Canadian dollar.
Here’s the Breakdown in Canada
In Canada, the economy stopped growing in the middle of 2023. Higher interest rates are affecting spending, with little growth in consumption and almost no change in business investment over the past year. The job market is slowing down, with job creation needing to catch up with the number of people looking for work. Despite this, wages are still going up by 4-5%. The data suggests that the economy is no longer in high demand.
The slowdown in the economy is causing less pressure on prices for a wide range of goods and services. Lower gasoline prices have led to a decrease in Consumer Price Index (CPI) inflation to 3.1% in October. However, housing prices are increasing, especially rent and other housing costs, contributing to higher shelter price inflation.
Seeing signs that their monetary policy is working to control spending and reduce price pressures, the Governing Council of the Bank of Canada decided to keep the interest rate at 5%. For more information, check out the Bank of Canada’s December 6, 2023 rate announcement>>