ADDS BANK OF CANADA GOVERNOR'S COMMENTS
By Ovunc Kutlu
ISTANBUL (AA) - The Bank of Canada on Wednesday kept interest rates unchanged, and said it continues its policy of quantitative tightening.
The target for the overnight rate was maintained at 5%, with the bank rate at 5.25% and the deposit rate at 5%.
"The global economy is slowing and growth is forecast to moderate further as past increases in policy rates and the recent surge in global bond yields weigh on demand," the central bank said in a statement.
The bank said it estimates the global economy to grow 2.9% this year, 2.3% in 2024 and 2.6% in 2025, noting that the US economy is proving to grow stronger, while economic activity in China is weaker than expected and growth in the euro area has slowed further.
"Inflation has been easing in most economies, as supply bottlenecks resolve and weaker demand relieves price pressures. However, with underlying inflation persisting, central banks continue to be vigilant. Oil prices are higher than was assumed in July, and the war in Israel and Gaza is a new source of geopolitical uncertainty," it added.
The central bank said past interest rate increases in Canada are dampening economic activity and relieving price pressures.
"Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment," the statement said.
The bank said Canada's economic growth is anticipated to continue remaining weak next year, after averaging 1% over the last year, before increasing in late 2024 and through 2025.
It now estimates the country's economy to grow 1.2% this year, 0.9% in 2024 and 2.5% in 2025.
Consumer inflation is expected to average around 3.5% through the middle of next year before gradually easing to 2% in 2025, it added.
Annual consumer inflation in the North American country softened to 3.3% in July, significantly down from the 8.1% that was seen last summer, but later rose to 4% in August.
Bank of Canada Governor Tiff Macklem said the central bank is already seeing more evidence that tighter monetary policy is reducing price pressures for many goods and services.
He said, however, that “higher global oil prices have driven up gasoline prices, and we now expect oil prices to remain higher than we assumed in July. Inflation in shelter prices is running above 6%."
"The combined impact of all these factors is that we now expect inflation to be about 3.5% through to about the middle of next year. As excess supply in the economy increases, inflation should ease further in 2024 and reach 2% in 2025," he said.
Macklem added that the bank is worried that higher energy prices and persistence in underlying inflation are slowing progress.