OECD sees inflation of 4% this year, faster than the Bank of Canada's forecast of 3.6%.
"The Bank should continue to shrink its balance sheet and stand ready to raise its policy rate as warranted to bring inflation sustainably back to target," according to the report being presented in Ottawa by Acting Chief Economist Alvaro Pereira and Senior Economist Philip Hemmings. The Bank's current policy is allowing maturing bonds to roll of its balance sheet, a process that will take years to unwind after the Bank deployed QE at the height of the Covid pandemic.
The OECD's advice comes two days before Governor Tiff Macklem is widely expected to keep the policy rate at 4.5% and affirm his intention to hold as long as the forecast for inflation to return to 2% next year is realized. The OECD predicts it will take until the end of 2024 for inflation to return to the Bank's target.
The report predicts the Bank will cut rates to about 3.8% by the end of next year. Economic growth will be 1.3% this year and 1.5% in 2024, slower than last year's pace of 3.6% as the economy re-opened, the OECD predicts. Unemployment is also predicted to be little changed at 5.3% this year and climb to 5.7% next year.
