Fri. Feb 23rd, 2024

The Bank of Canada will announce its withdrawal on Wednesday. decision regarding the key rate

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The Bank of Canada building, in Ottawa. (Archive photo)

The Canadian Press

As the Bank of Canada prepares to announce its next policy rate decision on Wednesday, economists are watching for clues as to when it plans to begin lowering the policy rate.

Overall, Wednesday should not bring any big surprises. The central bank is widely expected to continue holding its key interest rate at 5%, as it has done in its last three announcements.

But as the economy continues to slow and forecasters anticipate a steady decline in inflation, economists are eagerly watching for signs from the Bank of Canada indicating that it is ready to change course.

What I'm looking for is what I would call the next step. By the next step, I mean recognizing that the rate hikes are over.

A quote from Dominique Lapointe, global macro strategist at Manulife

So far, the Bank of Canada has not ruled out the possibility of raising the key rate again if inflation does not cooperate. However, forecasters do not believe that another rate hike is really possible.

Nathan Janzen, deputy chief economist at the Royal Bank of Canada (RBC), says that while the central bank can still keep the door open to further rate hikes on Wednesday, it is unlikely that it will have to exercise that option.

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The Bank of Canada should reduce the key rate this spring to avoid a deeper economic slowdown than is necessary to fight inflation.

Over the past year, the Canadian economy has stagnated as borrowing costs have weighed on businesses and consumers. This lower growth has translated into a less dynamic job market, with fewer job vacancies and a higher unemployment rate of 5.8%.

The Bank of Canada's recently released Business Outlook Survey reveals that labor shortages are no longer a major concern, and businesses are instead worried about slowing sales.

Its consumer expectations survey indicates Canadians are also limiting their spending as higher interest rates force mortgage holders to reduce their expenses in order to be able to pay higher monthly payments.

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The inflation rate reached 3.4% in December and is struggling to slow down. (File photo)

This decline in consumer spending is expected to further dampen the economy this year.

Manulife's economic outlook for 2024 suggests that #x27;economy will slow in the first half before resuming growth.

It will be a weak year, whether or not we face a technical recession, said Mr. Lapointe. The question will be how long will this slowdown last? And will we be able to achieve a sustainable recovery in the second half of this year?

He adds that the expected rebound in the second half depends on the drop in interest rates. #x27;interest.

The Bank of Canada should not yet start discussing rate cuts, especially since the x27;inflation increased last month.

Canada's annual inflation rate rose to 3.4% in December as underlying price pressures failed to ease . According to Mr. Lapointe, the fact that basic measures of inflation (which exclude price volatility) increased last month poses a communication problem at the central bank.

I think it's a problem for the Bank of Canada – it's also a problem for consumers – in the sense that it suggests that pricing pressures on the commodity front are more persistent than we thought. And that probably complicates their messaging next week, he said.

The Bank of Canada has already acknowledged that getting back to 2% inflation will have some bumps along the way. Governor Tiff Macklem said the central bank would not react to every setback, but rather would respond to consistent trends.

We still believe the most likely path for inflation is a lower path.

A quote from Tiff Macklem, Governor of the Bank of Canada

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Tiff Macklem, Governor of the Bank of Canada. (File photo)

Economy looks softer, monthly inflation data to rebound, but general trend is falling, said Mr. Janzen.

In addition to its announcement about the key rate, the Bank of Canada will publish its quarterly report on Wednesday on monetary policy. The report will include new forecasts for the economy and inflation.

In October, the Bank of Canada forecast that the ;inflation would fall to 2% in 2025.

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