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New Diplomacy on the Horizon: U.S. and Russia Push Ahead Without Ukraine

  In a bold shift from previous diplomatic efforts, top U.S. and Russian officials have agreed to advance negotiations aimed at ending the war in Ukraine—even as Ukrainian representatives remain notably absent. High-level talks held in Riyadh, Saudi Arabia, saw U.S. Secretary of State Marco Rubio and Russian Foreign Minister Sergey Lavrov discussing the framework for future peace negotiations and steps toward restoring bilateral relations. The Trump administration’s approach, which prioritizes direct engagement with Moscow, marks a departure from longstanding principles that insisted on “nothing about Ukraine without Ukraine.” Critics in Kyiv have voiced strong opposition. Ukrainian President Volodymyr Zelenskyy warned that any agreement reached without Ukraine’s participation would be unacceptable and would undermine the nation’s sovereignty. European leaders echoed these concerns, with several officials labeling the move as a dangerous precedent that could lead to a “dirty deal...

Inflation surprises keep Bank of Canada from cutting rates

 

The Bank of Canada (BoC) is expected to maintain its key overnight rate at 5% on Wednesday, despite the sluggish economic growth and the global trend of easing monetary policy. The reason is the persistent inflation pressure that has exceeded the BoC’s 2% target for four consecutive months.

The latest inflation data for December showed a 3.4% increase in the consumer price index, the highest since May 2021. The core inflation, which excludes volatile items such as food and energy, also rose to 2.8%, the highest since June 2019. These numbers surprised the markets, which had anticipated a rate cut by the BoC in the first half of 2024.

However, the BoC is likely to wait for more evidence that the inflation spike is temporary and not driven by underlying demand pressures. The BoC has attributed the high inflation to transitory factors such as supply chain disruptions, higher commodity prices, and base effects from the pandemic. The BoC expects inflation to return to the 2% target by the end of 2025.

The BoC will also release its quarterly Monetary Policy Report on Wednesday, which will provide updated forecasts for the Canadian economy. In October, the BoC projected a 0.8% annualized growth rate for both the third and fourth quarters of 2023, well below the potential output growth of around 2%. The BoC will likely revise down its growth outlook for 2024, reflecting the impact of the Omicron variant, the uncertainty over the fiscal policy, and the weak business investment.

The BoC will also face questions about its communication strategy, which has been criticized for being too vague and inconsistent. The BoC has not provided any forward guidance on its future policy actions, unlike its counterparts such as the Federal Reserve and the European Central Bank. The BoC has also been reluctant to use unconventional tools such as quantitative easing or negative interest rates, which could provide more stimulus to the economy.

The BoC will announce its rate decision and the Monetary Policy Report at 9:45 am ET on Wednesday, followed by a press conference by Governor Tiff Macklem at 11:15 am ET. The markets will closely watch for any hints on the BoC’s policy stance and its assessment of the inflation and growth outlook.

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