The Bank of Canada has decided to maintain its benchmark interest rate at 5.00%. This pause comes after ten consecutive rate hikes since March 2022. In July, the Bank raised the rate by 0.25% due to concerns about persistent inflation. Here are the key highlights:

 

Canadian Housing and Economic Performance:

• Canada's economy has entered a period of weaker growth to alleviate price pressures.

• Second-quarter 2023 economic growth contracted by 0.2%, reflecting weakened consumption, declining housing activity, and wildfires' impact.

• Household credit growth slowed due to higher rates.

• Final domestic demand increased by 1% in Q2, supported by government spending and business investment.

• Labor market tightness is gradually easing, with wage growth at 4-5%.

 

Inflation Facts and Outlook:

• Recent Consumer Price Index (CPI) data indicates persistent inflationary pressures.

• CPI inflation rose to 3.3% in July, averaging around 3%.

• Temporary increases in gasoline prices are expected to raise CPI inflation further.

• Core inflation remains at about 3.5%, showing little recent downward momentum.

• Persistent high inflation poses risks to price stability.

 

Global Economic Indicators:

• Global growth slowed in Q2, particularly in China.

• Weakness in China's property sector has diminished growth prospects.

• The United States saw stronger-than-expected growth, driven by consumer spending.

• Europe's service sector strength offset manufacturing contraction.

• Global bond yields have risen, reflecting higher real interest rates.

 

Summary and Outlook: The Bank holds the policy interest rate at 5%, citing easing excess demand. It remains concerned about underlying inflationary pressures and is ready to raise rates if necessary. The Bank will assess core inflation dynamics and the outlook for CPI inflation.