Toronto: The Bank of Canada today increased its target for the overnight rate to 4½%, with the Bank Rate at 4¾% and the deposit rate at 4½%.
The Canadian government has blamed this rise to ongoing war between Russia and Ukraine as well as to Covid-19 pandemic and accused China for this.
The government said in a statement that China’s abrupt lifting of COVID-19 restrictions has prompted an upward revision to the growth forecast for China and poses an upside risk to commodity prices.
Russia’s war on Ukraine remains a significant source of uncertainty. Financial conditions remain restrictive but have eased since October, and the Canadian dollar has been relatively stable against the US dollar.
Also, in the United States and Europe, economies are slowing but proving more resilient than was expected at the time of the Bank’s October Monetary Policy Report (MPR).
Meanwhile, the Bank of Canada has estimated the global economy grew by about 3½% in 2022, and will slow to about 2% in 2023 and 2½% in 2024. This projection is slightly higher than October’s.
Whereas, the Inflation has declined from 8.1% in June to 6.3% in December, reflecting lower gasoline prices and, more recently, moderating prices for durable goods.
Despite this progress, Canadians are still feeling the hardship of high inflation in their essential household expenses, with persistent price increases for food and shelter.
Short-term inflation expectations remain elevated. Year-over-year measures of core inflation are still around 5%, but 3-month measures of core inflation have come down, suggesting that core inflation has peaked.