Bank of Canada expected to hold interest rate
The Bank of Canada is expected to hold its key interest rate steady this week as inflation continues to slow, despite other data suggesting the economy is still running hot.
The central bank is set to announce its next interest rate decision on Wednesday. The announcement will be accompanied with updated economic projections for growth and inflation in its quarterly monetary policy report.
BMO chief economist Douglas Porter said although the economy is growing faster than anticipated, lower-than-expected inflation will convince the Bank of Canada to hold its key interest rate at 4.5 per cent.
“When we combine all these things together, it certainly looks like the (central) bank is likely to hold rates steady for now,” Porter said.
For months, the economic data that the Bank of Canada relies on for its interest rate decisions has been sending mixed signals on the state of the economy.
So far this year, growth and job numbers are coming in stronger than expected, even as the Bank of Canada’s key interest rate sits at its highest level since 2007.
After contracting slightly in December, real gross domestic product grew by 0.5 per cent in January. Statistics Canada’s preliminary estimate suggests the economy grew again in February by 0.3 per cent.
CIBC executive director of economics Karyne Charbonneau says a closer look at the economic growth numbers, however, shows that there may not be too much cause for concern.
“Some of the strength that we see in GDP seems to be the unwinding of some supply disruptions, which is actually a good thing for inflation,” Charbonneau said.
Meanwhile, businesses keep hiring. In March, the Canadian economy added 35,000 jobs, bringing the total number of jobs gained over the last six months to almost 350,000.
The unemployment rate also held steady at five per cent for the fourth consecutive month. That’s just above the all-time low of 4.9 per cent reached in the summer.
While this ongoing strength in the economy is not necessarily what the Bank of Canada wants to see, lower inflation is serving as good news.
In February, Canada’s annual inflation rate fell to 5.2 per cent, marking the second month in a row inflation came in lower than forecast. The slowdown in overall inflation comes as supply chains recover and commodity prices moderate.
The month-over-month inflation data shows inflation is actually tracking much closer to the Bank of Canada’s inflation target of two per cent.
Given the rapid rise in prices largely occurred in the first half of 2022, Canada’s inflation rate is expected to fall significantly in 2023, with most economists forecasting it will to fall to about three per cent by mid-year.
As long as inflation continues to fall as expected, the Bank of Canada doesn’t plan on raising interest rates further. It declared a conditional pause on rate hikes earlier this year, but kept the door open to more rate hikes if needed.
The Bank of Canada appears cautiously optimistic that its aggressive rate hikes between March 2022 and January 2023 — which saw its key interest rate rise from near zero to the highest it’s been since 2007 — will be forceful enough to quell inflation.
The effect of higher interest rates, which can take up to two years to be fully felt in the economy, is expected to continue broadening out in the economy and hamper growth.
Recent surveys conducted by the Bank of Canada also show consumers and businesses are gearing up for a slowdown. Consumers reported plans to cut back on travel and restaurant outings to save money. Meanwhile, businesses expect their sales to slow.
And although labour shortages were still a top concern for businesses, the survey found signs of both the labour market and wage growth easing.
“The survey results are actually showing that the interest rate hikes are working,” Charbonneau said.
“I think all of this is encouraging.”
This report by The Canadian Press was first published April 7, 2023.
India's economy likely gained pace in March quarter – Financial Post
NEW DELHI — India is set to release data on Wednesday that is expected to show the economy grew by 5% in the January-March quarter from a year earlier, accelerating from 4.4% in the previous quarter due to steady urban demand and government spending.
The median forecast from a Reuters poll of economists hinged on the robust performance of services like travel and retail, and the boost given to demand by falling food prices and the drop in oil prices globally.
Moving forward, India could be at the mercy of a potential global slowdown.
“Slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility” could pose downside risks to the economic growth, Reserve Bank of India, the central bank, warned in its annual report on Tuesday.
The last official estimate for the full 2022/23 fiscal year put growth at 7%, though that could be revised when the GDP data is released on Wednesday at 1200 GMT. Some private economists reckoned growth in the year to March 31 could turn out around 6.8%.
During the March quarter, high frequency indicators showed that a rise in urban incomes had boosted sales of expensive cars, Apple mobile phones, and air travel.
The performance looks less impressive considering that the economy was still working through the tail-end of the pandemic during the previous year.
Farm and manufacturing workers suffered flat growth in real wages due to high inflation, and that kept sales of motorbikes, low-end consumer goods and railway traffic below pre-pandemic levels.
Prime Minister Narendra Modi remains widely popular after nine years in power, but his Bharatiya Janata Party lost assembly elections in the southern state of Karnataka this month as the opposition Congress party promised to step up subsidies for households hit by inflation and unemployment.
Modi must call for a national election by early 2024, and there a several more state polls due before then.
Lack of good paying jobs remains a major issue among the youth as reflected in unemployment rate rising to 8.11% in April and more workers joining the workforce, according to Mumbai-based think tank Centre for Monitoring Indian Economy.
(Reporting by Manoj Kumar; Editing by Simon Cameron-Moore)
Canada's economy grew by more than expected in first quarter, upping odds of rate hike next week – CBC.ca
The Canadian economy grew at an annualized rate of 3.1 per cent in the first quarter of 2023, Statistics Canada reported Wednesday.
The latest data shows growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy grew by 0.2 per cent in April, after remaining flat in March.
The ongoing resilience in the economy will likely spur discussions of a potential rate hike, as the Bank of Canada is expected to make its next interest rate announcement next week.
The relatively strong GDP showing had investors increasing the odds of a rate hike when the central bank meets next week. Prior to the GDP numbers, trading in investments known as swaps was implying a litle over a one-in-four chance of a hike.
Now, those odds are better than one-in-three.
Statscan says growth in exports and household spending helped spur growth in the first quarter. On the other side of the ledger, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.
Tuan Nguyen, an economist with consulting firm RSM Canada, says the GDP numbers “blew past expectations.”
“After a slow final quarter of last year, the Canadian consumers and businesses came out strong in the first quarter, defying rising recession concerns that most market participants have been talking about,” Nguyen said. “There is no doubt that the data pointed to a hot economy, explaining why underlying inflation has remained elevated.”
Stubbornly high inflation
The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.
The household spending figures show spending up on both goods and services in the first three months of the year, after minimal growth in the previous two quarters.
However, the report notes disposable income fell for the first time since the fourth quarter of 2021. The federal agency says disposable income declined by one per cent, largely due to the expiration of government measures aimed at helping people cope with inflation.
The central bank paused its rate-hiking cycle earlier this year, keeping its key interest rate at 4.5 per cent — the highest it’s been since 2007.
But the central bank’s governor, Tiff Macklem, has signalled that the bank is still trying to figure out if interest rates are high enough to quash inflation.
The headline inflation rate ticked up slightly to 4.4 per cent in April, remaining well above the central bank’s two per cent target.
What the JOLTS Report tells us about the economy – Yahoo Canada Finance
The Canadian Press
National Bank reports Q2 profit down from year ago, raises quarterly dividend
MONTREAL — National Bank of Canada raised its quarterly dividend and reported its second-quarter profit fell compared with a year ago as it faced higher non-interest expenses and increased provisions for bad loans. The Montreal-based bank said Wednesday it will now pay a quarterly dividend of $1.02 per share, up from 97 cents. The increased payment to shareholders came as National Bank reported a profit of $847 million or $2.38 per diluted share for the quarter ended April 30, down from a profit
COVID-19's 'long tail' analyzed at European rheumatology congress – The Science Board
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