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Analysts believe that the Bank of Canada will likely keep rates on hold as inflation cools along with the stress in the global banking system, despite accelerating growth in the first quarter.
Canada’s central bank paused last month’s tightening, leaving the benchmark rate at 4.50%, to allow the impact of previous successive tightening to fully show.
Governor Tiff Macklem said he would hold off on further increases as long as inflation came down as expected.
Inflation recorded in February clocked at 5.2%, significantly down from the peak of 8.1%. The central bank is also aware of the current banking issues in the U.S. and Europe, where banks are on guard against a potential credit crunch. Some experts believe that the recent global banking events most certainly have a part to play in the Bank of Canada’s decision to hold rates.
Last month, Deputy Governor Toni Gravelle of the central bank said the Bank of Canada was “ready to act in the event of severe market-wide stress” in the financial system. He, however, added that currently, Canada is nowhere near that point.
Financial analysts feel that Canada will eventually find a neutral rate that does not stimulate or slow the economy, around 2% to 3%. These rates may be a touch higher than previous expectations.
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