On July 24, the Bank of Canada announced that it would lower its policy interest rate by 0.25% to 4.5%. This is the second interest rate cut by the Bank of Canada this year.
The Fed explained that it took three factors into consideration when lowering interest rates: “First, monetary policy is working to ease broad-based price pressures. Second, the economy is in an oversupply state, and there is spare capacity in the labor market, providing more room for the economy to grow without creating inflationary pressures. Third, as inflation approaches its 2% target, it becomes important to balance the risks of higher-than-expected inflation against the risks that the economy and inflation will weaken more than expected.” He also predicted that “inflation is expected to moderate further going forward, but progress over the next year will be uneven.”
Regarding future interest rates, he said, “If inflation continues to ease roughly in line with our expectations, it is reasonable to expect further cuts in the policy rate,” suggesting that further cuts in interest rates are possible.
Statistics Canada said inflation moderated to 2.7 per cent in June after rising in May, indicating that broad-based inflationary pressures are easing. Regarding the Canadian economy, the report states, “With the population growing steadily at around 3%, the economy’s potential output is growing at a faster pace than GDP. However, household spending, including personal consumption and housing, is sluggish, and there are signs of stagnation in the labor market.
The unemployment rate has risen to 6.4%,” GDP (gross domestic product) growth is forecast to be 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026. The report explains that excess supply will be gradually absorbed from 2025 to 2026 as the economy recovers. The next announcement will be in September.