In Canada, demand is still exceeding supply and the labour market remains tight. Economic growth in the first quarter looks to be stronger than was projected in January, with a bounce in exports and solid consumption growth. While the bank’s Business Outlook Survey suggests acute labour shortages are starting to ease, wage growth is still elevated relative to productivity growth.
As more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption is expected to moderate this year. Softening foreign demand is expected to restrain exports and business investment. Overall, GDP growth is projected to be weak through the remainder of this year before strengthening gradually next year. This implies the economy will move into excess supply in the second half of this year.
CPI inflation eased to 5.2 per cent in February, and the bank’s preferred measures of core inflation were just under five per cent. The bank expects CPI inflation to fall quickly to around three per cent in the middle of this year and then decline more gradually to the two per cent target by the end of 2024. Recent data is reinforcing Governing Council’s confidence that inflation will continue to decline in the next few months.
In light of its outlook for growth and inflation, Governing Council decided to maintain the policy rate at 4.5 per cent. Quantitative tightening continues to complement this restrictive stance. Governing Council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the two per cent target.
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