The Bank of Canada wrestled at its April 12 policy meeting with a choice of raising its interest rate target or keeping it steady for a second consecutive month, meeting minutes show. In the end, the Governing Council voted to keep its rate target at 4.5% to give itself “the opportunity to accumulate more evidence that a higher policy rate is in fact required.”
Among the rationales for raising the rate target was the idea that—although the pace of inflation has edged down—getting from 3% inflation to the bank’s 2% target was likely to be the hardest increment. The Governing Council considered that a further rate hike might be deemed necessary.
“High core and services inflation can eventually show up in higher wages,” said Asawari Sathe, a Vanguard senior economist. “The Bank of Canada is worried about such sticky inflation. With the labor market as strong as it is, we believe monetary policy may have to tighten further.”
We continue to foresee 2023 GDP growth of about 1%, with risks to the downside, and a recession late in the year.