Bank of Canada Cuts Policy Rate by 0.25%
Today, the Bank of Canada lowered its target for the overnight rate to 4.75%, with the Bank Rate set at 5% and the deposit rate at 4.75%. The Bank continues its balance sheet normalization policy.
Globally, the economy grew by approximately 3% in the first quarter of 2024, aligning with the projections from the Bank’s April Monetary Policy Report (MPR). In the United States, economic growth was slower than anticipated due to weaker exports and inventory reductions, despite robust private domestic demand that has recently eased. The euro area saw increased activity in the first quarter, and China experienced stronger growth driven by exports and industrial production, although domestic demand remained sluggish. Inflation in most advanced economies continues to decline, though the path to price stability is uneven and varies across regions. Oil prices have remained close to the MPR assumptions, with little change in financial conditions since April.
In Canada, economic growth resumed in the first quarter of 2024 after a stagnation in the latter half of the previous year. The GDP growth of 1.7% for the first quarter was below the MPR forecast, influenced by reduced inventory investment. Consumption growth remained solid at around 3%, with increases also seen in business investment and housing activity. Labour market data indicate ongoing hiring by businesses, though employment growth is lagging behind the increase in the working-age population. Wage pressures persist but appear to be gradually easing. Overall, recent data suggest the Canadian economy is still experiencing excess supply.
Consumer Price Index (CPI) inflation fell further in April, reaching 2.7%. The Bank’s preferred core inflation measures also slowed, with three-month trends indicating continued downward momentum. The range of price increases across CPI components has decreased and is approaching historical averages, although shelter price inflation remains high.
Given the continued signs of easing underlying inflation, the Governing Council decided that monetary policy no longer needed to be as restrictive and reduced the policy interest rate by 25 basis points. Recent data have strengthened confidence that inflation will continue to trend towards the 2% target. Nonetheless, risks to the inflation outlook persist. The Governing Council is closely monitoring the evolution of core inflation, focusing particularly on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behavior. The Bank remains firmly committed to restoring price stability for Canadians.
