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Bank of Canada Holds Rates Unchanged Amid Economic Stagnation
In their most recent monetary policy meeting, the Bank of Canada maintained its benchmark interest rate at 5%, signaling a cautious approach to potential economic changes. This decision followed an environment where inflation pressures had begun to ease, with data indicating core inflation remained within a manageable range.
Economic Performance and Inflation Dynamics:
The Bank of Canada highlighted that inflationary pressures were not as pronounced as they had been in previous quarters. Despite household spending and home construction providing some support during the middle quarters of 2023, broader economic growth remained stagnant. Real GDP contracted slightly in the third quarter, while consumption growth showed little movement over the last two quarters.
Wage Growth and Core Inflation:
While wage growth continued to accelerate at a four-to-five percent pace, the central bank noted that shelter prices stood out as outliers. rent increases alongside higher mortgage costs contributed to this pattern. Core inflation measures, which the Bank favors, have remained stable around 3.5-4%, reflecting a managed environment despite some external factors.
Potential Future Rate Adjustments:
The Bank of Canada expressed cautious optimism about future monetary policy. They expect global economic conditions and inflationary pressures to ease over the coming months, particularly noting that U.S. growth may cool as past rate hikes take effect. In contrast, euro area economies are already experiencing some weakening, further reducing inflationary headwinds.
Growth Outlook:
The central bank’s outlook emphasized a potential slowdown in the global economy, which could impact inflationary pressures across various sectors. However, they remain closely monitoring developments to ensure economic stability and to avoid unintended consequences of rate adjustments.
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