The Bank of Canada announced it is holding its overnight rate at 2.25%, with the Bank Rate remaining at 2.5% and the deposit rate at 2.20%, respectively.
“Financial conditions have been volatile, reflecting daily developments in the Middle East and shifting market expectations for inflation and interest rates,” said the central bank in a statement. “Bond yields are modestly higher since January while equity markets, which weakened sharply at the outset of the war, have recovered. Since the start of the war, the US dollar has appreciated against most major currencies. The Canada-US exchange rate has been relatively stable.”
The Bank of Canada added that “housing activity declined in the fourth quarter and is being held back by slow population growth, economic uncertainty and ongoing affordability issues.” CPI inflation rose to 2.4% in March, which was attributed to elevated gasoline prices.
“Near-term inflation expectations have moved up with higher gasoline prices and still-elevated food price inflation, but longer-term inflation expectations have remained anchored,” the central bank stated. “CPI inflation will likely rise further in April to about 3%. Based on the assumption that oil prices will ease, inflation is forecast to come down to the 2% target early next year and remain around 2% over the projection horizon.”
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