Bank of Canada hikes growth forecast and says inflation slowing only gradually

Ottawa, July 12 (BNA): The Bank of Canada (BoC) on Wednesday raised its growth forecast for the year to 1.8%, from the 1.4% forecast in April, as excess demand continues to fuel falling core inflation. slower than previously estimated.

In its quarterly monetary policy report, the Bank of Canada said inflation will fall to the central bank’s target of just 2% in mid-2025, six months later than expected in April, Reuters reported.

The central bank also raised its quarterly growth forecast. The economy is expected to expand 1.5% in the second quarter from the previous quarter on an annual basis, up from 1% in April, and a 1.5% gain in the third quarter.

“The rebalancing of supply and demand is now expected to take place in early 2024, three-quarters later than previously expected,” the report said.

The central bank said the growth was driven by a tighter-than-expected job market, increased pent-up demand for services, a stronger outlook for home prices, and regional and federal fiscal actions.

The Bank of Canada raised interest rates to a 22-year high of 5.00% on Wednesday, citing concerns that inflation could stall above its 2% target.

“CPI inflation is expected to increase by up to 0.4 percentage point in the first half of 2024,” the report said. “Core inflation is also expected to be higher – by up to 0.5 percentage point in the first quarter of 2024.”

Canada’s potential output growth is expected to pick up to around 2% per annum over the projection horizon from 1.4% in 2022, and the nominal interest rate is seen to be in the range of 2% to 3%, unchanged from previously.

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