By Ketki Saxena
Investing.com -- With mounting signs of a cooldown in the Canadian economy, the BoC acknowledged that "There is growing evidence that tighter monetary policy is restraining domestic demand."
This is all in line with the BoC’s goals - to cool excess demand in the Canadian economy and temper historically tight labour markets in order to bring inflation back to target.
However, thus far the Bank of Canada has maintained that a soft-landing will be possible in Canada: essentially, that the central bank will be able to adequately tame excess demand in the economy without triggering an economic downturn.
But today, the Canadian central bank appeared to admit that a soft landing no longer appears possible, noting "that growth will essentially stall through the middle of 2023."
The Bank of Canada’s forecasts - belatedly in line with the consensus from private sector economists - now indicate that the economy will enter a downturn.
However, the end does not appear to be in sight just yet. While the BoC indicated that while a pause is likely on the horizon, more rate hikes are in the cards at the moment as “The economy continues to operate in excess demand; labour market remains tight", and "Inflation is still too high and short-term inflation expectations remain elevated.”
On a positive note, the BoC stated that “Three-month rates of change in core inflation have come down in an early indicator that price pressures may be losing momentum."
The BoC finished its statement by saying that further rate hikes would be needed to bring supply and demand into balance, adding that Quantitative Tightening (QT) “is complementing increases in the policy rate.”