In a widely anticipated move, the Bank of Canada (BoC) has announced another quarter-point decrease to its policy interest rate, bringing it down to 4.25%. This marks the third consecutive meeting to culminate in a quarter-point cut.
“In Canada, the economy grew by 2.1% in the second quarter, led by government spending and business investment. This was slightly stronger than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July,” Governing Council said in a statement on Wednesday morning. “The labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity.”
Council also pointed to inflation, which, at last count, slowed to 2.5% in July (a 40-month low).
“The Bank’s preferred measures of core inflation averaged around 2.5% and the share of components of the consumer price index growing above 3% is roughly at its historical norm. High shelter price inflation is still the biggest contributor to total inflation but is starting to slow,” the statement said. “With continued easing in broad inflationary pressures, Governing Council decided to reduce the policy interest rate by a further 25 basis points.”
As mentioned, this latest move from the central bank was seen coming. In fact, economists with Canada’s ‘Big Five’ banks were unanimously calling for a quarter-point cut just days before Wednesday’s announcement, saying that Canada’s economic picture is soft enough to warrant easing at most — if not every — BoC meeting through 2025.
There are just two more interest rate announcement remaining in 2024, one on October 23 and another on December 11, and both of the announcements are expected to result in further rate cuts. In particular, economists with TD and Scotiabank are forecasting that the policy rate will end up at 3.75% by the end of this year.
