Fitch affirms Canada's rating at 'AA+' with stable outlook

ISTANBUL

Fitch Ratings announced Thursday it affirmed Canada's long-term foreign currency rating at "AA+" with a stable outlook.

The agency said Canada's ratings reflect strong governance, high per capita income, a macroeconomic policy framework that has delivered steady growth and generally low inflation, in addition to a falling public debt burden.

"The general government fiscal deficit narrowed to 0.7% of GDP in 2022, from a peak of 11.3% in 2020, reflecting withdrawal of pandemic support at the federal level, and higher revenues amid strong nominal GDP growth and commodity prices," it said in a statement.

There are, however, downside risks regarding Canada that include rolling out of green energy subsidies to compete with the US' green energy tax credits, ongoing demands for higher spending, and wage pressures caused by higher inflation, it added.

Although higher interest rates are raising debt servicing costs for many mortgage holders, households are managing well so far with mortgage delinquencies at historical lows. But, this could be tested by further increases in interest rates, Fitch warned.

The Bank of Canada on Wednesday hiked interest rates by 25 basis points, as the central bank said it continues its policy of quantitative tightening. The target for the overnight rate has been increased to 4.75%, with the bank rate now at 5% and the deposit rate climbing to 4.75%.

Canada's annual consumer inflation slowed to 4.3% in March, easing from the 5.2% year-on-year gain in January, but rose to 4.4% in April, according to the latest figures by Statistics Canada.

The figures, however, still showed a significant slowdown from the 8.1% annual gain in June 2022, which was the highest in 39 years.