TORONTO (Reuters) – The Bank of Canada is expected to keep interest rates unchanged at its Wednesday meeting after recent shocking economic strength, analysts say, and activity as rising borrowing costs subside. hopes it will cool down.
Last month, the Bank of Canada became the first major global central bank to pause its rate hike campaign after raising its benchmark interest rate to a 15-year high of 4.50%. As expected, he said no further tightening would be needed even if the economy slowed or slipped into a slight recession.
Inflation has eased in recent months, but other economic indicators show the economy is picking up pace from a weak fourth quarter.
Preliminary data from last week showed gross domestic product (GDP) rose 0.3% month-on-month in February, based on January’s higher-than-expected 0.5% rise. Employment data for March marked the seventh consecutive year of job growth.
“The economy is seeing new momentum, more people are working and incomes are rising,” said James Orlando, senior economist at TD Economics. “They are spending more again. This translates into higher economic growth.”
While this is welcome news for most people, it is not welcome news for Bank of Canada (BoC) Governor Tiff Mackrem.
Mr Macklem is trying to rebuild public confidence after facing criticism that he acted too slowly to curb inflation that surged after pandemic restrictions were lifted. The central bank initially admitted to misjudged price pressure.
That effort could be complicated by Prime Minister Justin Trudeau’s recent budget.
Concerned but hopeful
The median forecast of six economists surveyed by Reuters pegs growth at 2.5% for the first quarter, well above the BoC’s forecast of 0.5%.
“For the BoC, we continue to expect a hold,” Orlando said. We think
All 33 economists surveyed by Reuters agree to keep key overnight rates on hold on Wednesday, when the BoC makes its next policy announcement. Financial markets are betting that the central bank’s next move will be a rate cut.
Investors believe the impact of rising borrowing costs has not yet been fully felt, and recent stress in the global banking system has increased fears of a credit crunch, including in the United States. Canada sends 75% of her exports to its southern neighbors.
“We see growth driven by the easing of supply constraints so far, rather than a significantly stronger domestic demand,” said Andrew Grantham, senior economist at CIBC Capital Markets.
“The Bank of Canada is likely to see similar strength in Q1 GDP and raise its estimates of potential growth.”
Potential growth is the rate at which economic activity can increase without causing inflation, so rising levels of estimates could reduce the need for hawkish shifts from central banks.
Economists say rapid population growth and easing supply chain disruptions could boost Canada’s potential growth. This is an average of 2.25% for his 2023 and 2024 last BoC estimates.
Nathan Janzen, assistant chief economist at Royal Bank of Canada, said Canada’s economy faces headwinds from rising borrowing costs and concerns about financial stability, but inflation has cooled more than in the United States. said he was.
“So there are good reasons on both sides for the central bank to stick to a wait-and-see approach for the time being,” Janzen said.
Reported by Fergal Smith. Editing by Steve Scherer and Andrea Ricci
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