After a period of aggressive monetary tightening, inflation looks to be returning to the Bank of Canada’s target range.
Today, the Bank of Canada will announce its decision on the overnight rate.
Rates are likely to be held at this meeting. However, but the BoC is expected to cautiously reduce interest rates this summer.
This should ease the burden of debt servicing costs for households and stimulate business investment, promoting an economic recovery. The BoC has maintained its policy rate at 5% since July 2023.
Fiscal policy, characterized by substantial government spending, is also influencing economic dynamics. A shift towards more sustainable spending growth is anticipated in the coming years.
With this in mind, there are still challenges in the Canadian economy. Household finances are strained by inflation and high interest rates, leading to increased mortgage delinquencies.
Businesses are also facing difficulties with rising insolvencies due to weak demand and high borrowing costs.
Despite these challenges, Canada could avoid a recession. The main factors to support this are GDP growth, a gradual slowdown in inflationary pressures, anticipated interest rate cuts and sustained immigration to support domestic demand.
