OECD forecasts Bank of Canada to raise interest rate by 4.5% in 2023

The Organisation for Economic Co-operation and Development expects the Bank of Canada to raise its policy interest rate to 4.5 per cent in 2023, a higher than many economists who expect the rate to peak at four per cent.

In June of this year, global growth is projected to slow to 2.2 per cent, down from a forecast of 2.8 per cent. The OECD also decreased its forecast for Canada's GDP growth by 0.4 per cent to 3.4 per cent in 2022 and 1.5 per cent in 2023, down 1.1 per cent from its earlier forecast. The global economy has lost momentum due to Russia's unprovoked, unjustifiable and illegal war of aggression against Ukraine. OECD secretary-general Mathias Cormann said that GDP growth has stalled in many economies and economic indicators point to an extended slowdown. The OECD warned that high inflation is getting more and more severe. Before the Ukraine war, inflation was pushing above central banks targets in most G 20 countries, but the conflict made it worse, raising prices on food, energy and industrial metals.

As higher energy, transportation and other costs pass through the price, inflationary pressures have become increasingly broad-based, said the OECD. Pressures on a wide range of prices have been put on by the strong growth in Canada, the U.S. and the U.K. The OECD expects that Canada's inflation rate will stay at 6.9 per cent this year, up almost a percentage point from its June forecast. Inflation should drop to 4.5 per cent in 2023, but is still higher than the Bank of Canada's target range of two and three per cent. In most major advanced economies, policy rate increases are needed to reduce inflation, and these will likely involve a period of below-trend growth, according to the OECD. The agency said that policy rates in the United States will go up 4.5 to 4.75 per cent in the United States, 4.5 per cent in Canada and 4.25 per cent in the United Kingdom are projected to increase because of labour market pressures in these countries.

The Bank of Canada has a current rate of 3.25 per cent.