MONTREAL, Canada – The Bank of Canada is expected to maintain the status quo at its October meeting, having done the same in September. The key rate would therefore remain at 5.0 percent following the October 25 meeting of the Governing Council.
Although signs of improvement in inflation have turned around recently, and the job market is not losing as much strength as anticipated, the economy is indeed showing signs of softening. At the time of writing, some of the key data that will guide the Bank of Canada’s future decision remain unknown, namely the September inflation report and the results of the Business and Consumer Outlook survey. If September inflation rises above 4 percent and inflation expectations remain too high, the central bank could be forced to raise the policy rate once again.
The loonie continues to fall
The Canadian dollar depreciated even further at the start of the fall, averaging just under US$0.74 in September and getting very near US$0.72 since the beginning of October. The Canadian dollar’s slide against the US greenback is partly explained by the interest rate differential between the two countries. The Canadian outlook was clouded recently by negative GDP growth in the second quarter, in contrast to the US, which continues to grow at potential. The Canadian dollar is likely to remain weak, fluctuating between US$0.73 and US$0.72 over the coming weeks.
Pessimism grips business leaders
CFIB’s business confidence index for the year ahead fell below the critical 50 mark in September, reaching a level close to the trough that prevailed in April 2020, at the height of the COVID-19 pandemic. The index fell from 54.6 to 48.7 between August and September. This suggests that companies are becoming increasingly fearful of the future, with the majority anticipating a deterioration in their activities over the coming months.