The Bank of Canada recently announced a 25 basis points increase in its target for the overnight rate, now standing at 4.75%. Alongside this decision, they continue their quantitative tightening policy.
This move comes as global consumer price inflation is experiencing a decline due to lower energy prices, while underlying inflation remains high. In response, major central banks are contemplating further interest rate hikes to restore price stability.
The Canadian economy exceeded expectations in the first quarter of 2023, exhibiting a GDP growth of 3.1%. Consumption growth was robust and widespread, with increased spending on interest-sensitive goods. The housing market witnessed increased activity, and despite higher immigration and participation rates, the labor market remained tight. CPI inflation also rose to 4.4% in April, marking the first increase in ten months.
The Bank of Canada's decision to raise interest rates aims to address the persistent excess demand and potential inflation risks. Their focus is on restoring price stability, and they will closely monitor core inflation dynamics, excess demand, inflation expectations, wage growth, and corporate pricing behavior.
The Bank is committed to achieving its 2% inflation target and will provide a comprehensive outlook for the economy and inflation in the upcoming Monetary Policy Report, scheduled for release in July. The next announcement regarding the overnight rate target is scheduled for July 12, 2023.