Policymakers are treading carefully with rate adjustments in 2024
The Bank of Canada has shared insights into the Governing Council's deliberations leading up to the monetary policy decision announced on January 24, hinting at a thoughtful yet flexible path ahead for interest rates. Currently, the policy rate is steady at 5%, but the council is keeping an eye on inflation's moves and stands ready to adjust as necessary.
Inflation remained a central concern in the discussion, with the Consumer Price Index (CPI) ending the year at 3.4% and core inflation measures lingering between 3.5% and 4%. The broad-based nature of inflation, particularly in goods excluding food and energy, food inflation, and services excluding shelter, underscored the challenge of returning to the bank's 2% inflation target.
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Looking ahead, the Governing Council expects economic growth to remain subdued in the first half of 2024, with a gradual pickup in the latter half of the year.
Inflation is projected to hover around 3% in the first half before easing towards 2% in 2025. The council emphasized the importance of monitoring short-term inflation expectations and wage growth closely, as these factors could influence the trajectory of underlying price pressures.
It is also moving forward with a plan to gradually normalize the bank's financial position by letting some bonds mature without renewal. This strategy supports their overarching goal of nudging inflation back to the Bank's 2% target while ensuring the economy remains on solid ground.
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