The Bank of Canada (BoC) is predicted to maintain interest rates during its meeting on Wednesday, despite recent unexpected economic growth, as it waits for the effects of higher borrowing costs to materialize, according to analysts. BoC Governor Tiff Macklem faces public scrutiny over the central bank’s earlier response to inflation, which will likely influence the bank’s cautious approach.
Canada’s economy has demonstrated renewed momentum, with February’s gross domestic product (GDP) rising by 0.3% month-over-month, following a 0.5% increase in January. Employment data for March revealed a seventh consecutive job gain, leading economists to revise their GDP estimates. The median forecast from six economists surveyed by Reuters now stands at 2.5% for first-quarter growth, significantly above the BoC’s 0.5% projection.
However, experts suggest that the central bank will remain patient. James Orlando, a senior economist at TD Economics, commented, “For the BoC, we still expect a hold. They will likely be concerned about the rebound in economic activity, but we think they are still hopeful of a deceleration over the remainder of 2023.” The 33 economists polled by Reuters unanimously predict that the BoC will keep its key overnight rate steady.
Investors believe the full ramifications of increased borrowing costs have yet to appear, and growing concerns over a potential credit crunch in the global banking system add to the cautious outlook. Canada, which sends 75% of its exports to the United States, may face headwinds from higher borrowing costs and financial stability concerns. Nathan Janzen, the assistant chief economist at the Royal Bank of Canada, suggested that the BoC will maintain a “wait-and-see approach” for the time being.