The Bank of Canada has raised its overnight rate to 3.75 per cent from 3.25 per cent. Since March, the central bank has increased its policy rate six times, aimed at tackling inflation and bringing it back to its 2 per cent target.
The bank predicts Canada could see a potential recession in the first half of 2023, according to its latest Monetary Policy Report.
“GDP growth is then projected to slow to between 0 per cent and 0.5 per cent through the end of 2022 and the first half of 2023,” reads the report. “This suggests that a couple of quarters with growth slightly below zero is just as likely as a couple of quarters with small positive growth.”
The bank predicts Canada’s growth will slow from 3.25 per cent this year, to just under 1 per cent in 2023. Global growth will also decrease to 1.5 per cent next year, a slowdown not seen since 1982, excluding the COVID-19 pandemic and the 2008 financial crisis.
“What that means is that, yes, a couple, two, three quarters of slightly negative growth is just as likely as two or three quarters of slightly positive growth,” said Bank of Canada Governor Tiff Macklem during a press conference on Wednesday. “That’s not a severe contraction, but it is a significant slowing of the economy.”
Inflation remains elevated at 6.9 per cent, with the bank seeing no meaningful evidence of it easing in the near term. International factors such as energy prices and global supply disruptions remain major causes. Domestic factors such as a tight labour market and excess demand for goods and services are also becoming more of a concern.
Macklem signalled there will be more rate hikes to come.
“This tightening phase will come to a close,” he said. “We’re getting closer to that point, but we’re not there yet. So we do expect interest rates will need to go up further and we will determine the pace based on developments going forward.”
The bank predicts inflation will decline to about 3 per cent by the end of next year, and will hit its 2 per cent target by 2024.
The Bank of Canada’s next rate announcement is scheduled to take place on December 7.