Banff 
The Bank of Canada has lowered its policy interest rate by 50 basis points, bringing the target for the overnight rate to 3.75%. The Bank Rate is now at 4%, with the deposit rate also set at 3.75%.
This move comes as part of the central bank’s ongoing effort to normalize its balance sheet while managing economic growth and inflation.
Key highlights from the announcement include:
- Global and Domestic Growth: The global economy is expected to grow at approximately 3% over the next two years. While growth forecasts for the United States have improved, expectations for China remain weak, and the euro area shows signs of a modest recovery next year. Meanwhile, Canada’s GDP growth reached about 2% in the first half of the year, with a projected slowdown to 1.75% in the latter half.
- Inflation Trends: Inflation across advanced economies has recently declined, now hovering around central bank targets. In Canada, inflation dropped from 2.7% in June to 1.6% in September. The reduction in global oil prices has contributed to lower gasoline prices, aiding in the overall decline in inflation.
- Labor Market and Consumption: The Canadian labour market continues to show softness with a September unemployment rate of 6.5%. Despite ongoing growth in consumption, it has decreased on a per capita basis. Wage growth remains high compared to productivity, indicating persistent economic imbalances.
- Investment and Exports: The opening of the Trans Mountain Expansion pipeline has significantly bolstered Canadian exports. Projections for residential investment growth are positive, reflecting strong housing demand and increased spending on renovations. Business investment is also expected to rise in response to improving demand.
- Long-term Growth Projections: The Bank predicts GDP growth will accelerate gradually, expecting rates of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026 as the economy strengthens and excess supply diminishes.
Inflation has fallen significantly, from 2.7% in June to 1.6% in September, with shelter costs still high but easing. Gasoline prices have dropped due to lower global oil prices, contributing to the overall decline in inflation.
The Bank expects inflation to remain near its 2% target in the coming years.
“With inflation now back around the 2% target, Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range. If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further,” reads the press release.
“However, the timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook. We will take decisions one meeting at a time.”
The next scheduled date for announcing the overnight rate target is on Wednesday, December 11, 2024
