Investor Presentaiton
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Slowing Growth, Nearing End of Policy
Tightening Cycle
With inflation at or coming down from multi-decade highs in several economies, central banks have significantly increased their policy rates
since last year to re-align demand with supply and reduce inflation. While there are increasing signs that some drivers of inflation are slowing
with improved supply chain conditions, lower commodity prices and transportation costs, and healthier inventory levels, inflation remains
elevated in a broad range of countries as these disinflationary pressures are partly offset by resilient consumption and robust wage growth,
consistent with currently tight labour market conditions
While we still expect economic growth to slow meaningfully in 2023, the global economy remains resilient to the broad range of headwinds
that would normally slow economic activity, including rapid rate hikes and tightened credit conditions. Against this backdrop, inflation is
proving sticky over recent months in Canada and the U.S. Many central banks are at the end or nearing the end of their tightening cycles, but
cuts to Canadian and U.S. policy rates are unlikely this year and expected in Q2 2024
The Bank of Canada has hiked its policy rate to 5.00% and has an open bias to tightening further conditional upon data, owing to the
persistence of inflation and strong wage gains amid low productivity growth. Meanwhile, the Federal Reserve has hiked the upper bound of
the Federal Funds rate to 5.50% and indicated that each meeting going forward will be data dependent for whether they hike or hold at this
fine-tuning stage of their tightening cycle. The ECB and Bank of England are likely near the end of their current tightening cycles, while the
Bank of Japan has widened their tolerance toward a higher 10-year JGB yield ceiling and openness to take additional steps as monitors
inflation data. Inflation has eased from recent peaks in most of the Pacific Alliance Countries as central banks have begun to consider how
much longer to hold the policy rates unchanged, with both Chile and Brazil's central banks starting to cut their policy rates in July and August
respectively. As in many other countries, regional central banks are either done or nearly done raising interest rates and in some cases are
pivoting toward modest easing
CANADA: BANK OF
CANADA POLICY RATE VS
HEADLINE INFLATION 1
CANADA UNEMPLOYMENT
RATE 1
PAC UNEMPLOYMENT
RATES 1
PAC INFLATION 1
9 %
8
7
6
is
Headline
inflation
5
4
+ 3 2
1
16
%
forecast
14
12
10
8
6
16
y/y % change
25
25
%, SA
20
Chile
Colombia
Mexico
Peru
12
15
8
10
5
Chile
Mexico
Colombia
Peru
Ay
4
0
Policy rate
-1
2
0
-4
18
19
20
21
22
23
24
15
16
17
18
19
20
21
22
23
10 11 12 13 14 15 16 17 18 19 20 21 22 23
06070809 10 11 12 13 14 15 16 17 18 19 20 21 22 23
62
1 Sources: Scotiabank Economics, Bank of Canada, Statistics Canada, Haver Analytics.View entire presentation