Achi news desk-
The Bank of Canada held its policy rate at 5 percent on Wednesday, saying it needs to see a sustained decline in inflation before rate cuts can begin.
“I realize that what most Canadians want to know is if we lower our policy interest rate,” said Bank of Canada Governor Tiff Macklem. “What do we need to see to be convinced it’s time to break? The short answer is that we are starting to see what we need to see, but we need to see it longer to be confident that progress towards price stability will be sustained.”
The central bank projects inflation to ease from 3 percent earlier in 2024 to 2.5 percent by the end of this year. Inflation is expected to return to target by 2025, which fell to 2.8 per cent in February.
Although progress has been made in cooling inflation, the costs of services and food remain high.
Risks to the inflation outlook remain
Risks also remain which could potentially increase inflation again. The central bank is concerned about three main areas that could push inflation higher. House prices could rise more than expected due to stronger demand on supply. Shelter price inflation remains high at 7 per cent, driven by high mortgage costs and strong rent growth.
In addition, the bank is not convinced that wage growth, which is a key cost driver, will remain stable. If weak production continues, companies could face higher price pressures.
Finally, global tensions such as the wars in the Middle East and Ukraine could further affect global commodity prices.
“We don’t want to leave monetary policy this restrictive any longer than necessary,” Macklem said. “But if we lower our policy rate too early or cut too quickly, we could jeopardize the progress we’ve made in bringing inflation down.”
the Canadian economy
The bank forecasts gross domestic product (GDP) growth to pick up in the latter half of this year, with the economy expected to grow by 1.5 per cent this year, 2.2 per cent next year and 1.9 per cent in 2026.
An increase in business investment, the completion of the Traws Mynydd pipeline and population growth are the key factors leading to better growth in the economy.
Canadian exports are also expected to get a boost this year, driven mainly by higher demand from the United States.
The next rate announcement is scheduled for June 5.
