Economy
Bank of Canada holds rate at 5%, US dollar surges against loonie
The Bank of Canada (BOC) decided to maintain its overnight rate at 5% on Wednesday, in light of a slowing economy and the need to moderate spending and price pressures through monetary policy. This decision led to a surge in the US dollar, which rose above 1.3800 against the Canadian dollar, marking its highest level since the US banking concerns in March.
The BOC’s decision came amidst a volatile global market, characterized by a 1.4% fall in the Nasdaq and soft Google (NASDAQ:) earnings. However, a robust US new home sales report coincided with the BOC’s decision, bolstering both the US dollar and Treasury yields. The pair saw an increase of about 35 pips following this announcement.
Despite holding rates, the BOC signaled a potential deviation from future rate hikes due to stubbornly high core inflation. The bank maintains its hawkish bias, ready for further hikes if necessary. Current inflation dropped to 3.8% in September from 4% in August and is projected to remain at 3.5% until mid-2023.
According to the BOC, economic growth averaged 1% this year, with weak prospects anticipated until 2024 before a potential rise to 2.5% in 2025. The bank expects inflation to reach its 2% target rate by the end of 2025 and projects nearly 0.9% economic growth in 2024.
The bank also expressed concerns about slow progress towards its inflation target, potential oil price surges due to the Israel-Gaza conflict, and high domestic inflation expectations. Risks include businesses’ slow pricing adjustments and possible increased cost pressures if labor market conditions remain tight or productivity growth is weak.
High shelter costs are inflating the Canadian economy, with households paying more for rental and mortgage costs. Delinquency rates on mortgages remain low, but there’s an increase in borrowers falling behind on payments by 60 days in other credit products, notably motor vehicle loans, which have surpassed pre-pandemic levels.
The BOC warned about the potential impacts of monetary policy tightening, including triggering market volatility, sharp slowdowns in global growth, and negatively impacting equity and other asset prices if bond yields continue to rise. The next policy rate announcement is expected on Jan. 24, 2024.
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© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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