Bank of Canada hikes growth forecast and says inflation slowing only gradually

OTTAWA (Reuters)-The Bank of Canada (BoC) on Wednesday raised its growth forecast for this year to 1.8%, up from the 1.4% predicted in April, as excess demand continues feed underlying inflation, which is coming down more slowly than had been previously estimated.

In its quarterly Monetary Policy Report, the BoC said inflation would descend to the central bank's 2% target only in mid-2025, six months later than had been forecast in April.

The central bank also hiked its forecasts for quarterly growth. The economy is seen expanding 1.5% in the second quarter from the previous one on an annualized basis, up from 1% in April, and gaining 1.5% in the third quarter.

"The rebalancing of supply and demand is now expected to happen in early 2024, three quarters later than previously anticipated," the report said.

Driving growth is a tighter-than-expected labor market, greater pent-up demand for services, a stronger outlook for housing prices, and provincial and federal fiscal measures, the central bank said.