The Bank of
Canada (BoC) reduced its benchmark interest rate by 25 basis points to 4.50 per
cent on Wednesday, as widely anticipated. This was the second straight cut in the BoC’s key interest rate.
In its policy
statement, the Canadian central bank noted:
- Canada’s economic
growth likely picked up to about 1.5% through the first half of this year;
- There are signs of slack in the labour market;
- Wage growth is showing some signs of moderating, but
remains elevated;
- GDP growth is
forecast to increase in the second half of 2024 and through 2025;
- BoC forecasts
GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026. The strengthening
economy will gradually absorb excess supply through 2025 and into 2026;
- Broad inflationary pressures are easing;
- Shelter price inflation remains high and is still the
biggest contributor to total inflation. Inflation is also elevated in services
that are closely affected by wages, such as restaurants and personal care;
- BoC’s preferred
measures of core inflation are expected to slow to about 2.5% in the second
half of 2024 and ease gradually through 2025;
- BoC expects
CPI inflation to come down below core inflation in the second half of this
year;
- Today’s decision
to cut rates by another 25 basis points was taken amid signs that broad price
pressures are continuing to ease and expectations that inflation will move
closer to 2%;
- Ongoing
excess supply is lowering inflationary pressures;
- Governing Council is carefully assessing these opposing
forces on inflation;
- Monetary policy decisions will be guided by incoming
information and the BoC’s assessment of their implications for the inflation
outlook;
- BoC remains
resolute in its commitment to restoring price stability