The inflation rate could return to the 2 percent target by the end of the year, at least that is what parliamentary budget officer Yves Giroux predicts in his latest report.
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The parliamentary budget dictator also assumes that there will soon be an initial reduction in the key interest rate.
If the inflation target is maintained, there could be a first decline in April, Mr Giroux suggests in his report.
With supply currently catching up with demand across Canada and price pressures easing, the key interest rate could fall from the current 5% to 3.5% by the end of the year.
Deficit higher than expected
The Canadian Central Bank's monetary policy has dealt a serious blow to the country's economy. Mr Giroux's report actually forecasts GDP growth of less than 1% this year; Maintaining high interest rates for an extended period of time could have damaging consequences for the Canadian economy.
“It would start to hurt if, for example, the bank decided to keep the interest rate at 5% throughout 2024; “This could lead to an economic slowdown that is even more pronounced than what we are currently experiencing and than what we forecast for the rest of 2024,” Mr. Giroux explained in an interview.
“This would have unduly negative consequences for economic growth in Canada and the economic situation in general,” he added.
The parliamentary budget officer is also forecasting a higher deficit than expected.
Taking current measures into account, he expects a deficit of $46 billion, $6 million more than forecast in the fall economic update.
Mr. Giroux also warns that the deficit could grow even larger if interest rates remain high for an extended period and the economy continues to slow.
The Central Bank of Canada is due to announce what will happen to the key interest rate on Wednesday, March 6th.