Regina 
The Bank of Canada has announced a reduction in its policy rate by 25 basis points, bringing it down to 4.5%. The Bank Rate is now set at 4.75%, while the deposit rate is 4.5%. This move is part of the Bank’s ongoing balance sheet normalization policy.
Credit: PiggyBank on Unsplash
Key highlights from the announcement include:
- Global Economic Outlook: The global economy is projected to grow at an annual rate of 3% until 2026. Despite currently high inflation rates globally, gradual easing is expected. The U.S. is experiencing a slowdown with decreasing consumer spending, while Europe shows a growth recovery after a weak 2023. China’s economy benefits from strong exports against a backdrop of weak domestic demand.
- Canadian Economic Climate: In Canada, the first half of the year saw GDP growth of about 1.5%. The robust population growth of 3% is outpacing GDP growth, leading to an increase in excess supply. The unemployment rate has escalated to 6.4%, and household spending remains subdued.
- Future Growth and Inflation Projections: Canadian GDP is expected to rise in late 2024 and 2025, fueled by a recovery in exports, household spending, and business investment. Residential investment is also expected to increase significantly. CPI inflation, which moderated to 2.7% in June, is predicted to fall below core inflation later this year due to adjustments in gasoline prices but may rise slightly thereafter before stabilizing.
Per the news release, the Bank has opted for a rate cut due to the inflation pressures diminishing and the economy showing signs of excess supply. However, continued high costs in housing and wage-sensitive services keep inflation concerns relevant. The Bank of Canada maintains its commitment to steering inflation towards its 2% target, guided by incoming economic data.
The next scheduled date for announcing the overnight rate target is on Wednesday, September 4, 2024.
