(Kitco News) - The Bank of Canada (BoC) maintained its key overnight rate at 5% on Wednesday, as expected, and stated that it intends to continue reducing its balance sheet while warning about upside risks to inflation. The Bank Rate remained at 5.25% and the deposit rate at 5%.
The news did not have a significant impact on the Canadian dollar, which had already weakened considerably following the release of U.S. CPI at 8:30 am EDT. USD/CAD last traded at 1.3660 per U.S. dollar, up 0.61% on the session, with the Canadian dollar worth 73.20 U.S. cents at the time of writing.
Gold also sold off following the CPI report. The yellow metal was trading at $2350.81 in the minutes before the release before falling to a session low of $2,319.30 shortly after 9:30. It has since staged a recovery, last trading at $2,342.15, down 0.43% on the day.
The Bank of Canada painted a largely positive picture of economic conditions in the country and around the world but said that risks remain.
“The Bank expects the global economy to continue growing at a rate of about 3%, with inflation in most advanced economies easing gradually,” they said in its statement. “The US economy has again proven stronger than anticipated, buoyed by resilient consumption and robust business and government spending. US GDP growth is expected to slow in the second half of this year, but remain stronger than forecast in January.”
The Bank of Canada also expects the euro area “to gradually recover from current weak growth,” and noted that oil prices have moved up around the world. At the same time “bond yields have increased but, with narrower corporate credit spreads and sharply higher equity markets, overall financial conditions have eased.”
The BoC also revised its forecast for global GDP growth up to 2.75% in 2024 and around 3% in 2025 and 2026. “Inflation continues to slow across most advanced economies, although progress will likely be bumpy,” they said. “Inflation rates are projected to reach central bank targets in 2025.”
The Bank forecasts Canadian GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026. “The strengthening economy will gradually absorb excess supply through 2025 and into 2026,” they wrote. The BoC also expects CPI inflation to be “close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.”
“Based on the outlook, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet,” the statement said. “While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. The Council will be looking for evidence that this downward momentum is sustained.”
They added that Governing Council is “particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”
The BoC said it “remains resolute in its commitment to restoring price stability for Canadians.”
