Bank of Canada raises interest rates again, forecasts recession

OTTAWA-

The Bank of Canada raised its key rate to 3.75% from 3.25%. Since March, the central bank has raised its key rate six times, with the aim of tackling inflation and bringing it back to its target of 2%.

The bank predicts that Canada could experience a potential recession in the first half of 2023, according to its latest monetary policy report.

« GDP growth is then expected to slow to between 0% and 0.5% through the end of 2022 and the first half of 2023, » the report said. « This suggests that a few quarters with slightly below zero growth are just as likely as a few quarters with little positive growth. »

The bank expects Canada’s growth to slow from 3.25% this year to just under 1% in 2023. Global growth will also decline to 1.5% next year, a slowdown not seen since 1982. excluding the COVID-19 pandemic and the 2008 Financial Crisis.

“What that means is, yes, a few, two, three quarters of mildly negative growth is just as likely as two or three quarters of mildly positive growth,” Bank of Canada Governor Tiff Macklem said. , during a press conference on Wednesday. « It’s not a severe contraction, but it’s a significant downturn in the economy. »

Inflation remains elevated at 6.9% as the bank sees no significant evidence of a near-term slowdown. International factors such as energy prices and global supply disruptions remain major causes. Domestic factors such as a tight labor market and excess demand for goods and services are also of increasing concern.

Macklem signaled that there will be more rate hikes to come.

“This tightening phase will come to an end,” he said. “We’re getting closer to that point, but we’re not there yet. We therefore anticipate that interest rates will have to rise further and we will determine the pace depending on further developments. »

The bank expects inflation to fall to around 3% by the end of next year and reach its target of 2% by 2024.

The next Bank of Canada rate announcement is expected on December 7.