Angie Alvarez

From National Bank of Canada In the first rate decision with material uncertainty in a year, the BoC opted lower the target for the overnight rate by 25 basis points, a decision in line with market expectations and the consensus forecast. This makes the BoC the first G7 central bank to ease policy this year, though the ECB is widely expected to follow suit tomorrow. Citing clear progress in core inflation, in addition to ongoing sub-potential growth and a rebalancing labour market, the press release noted monetary policy no longer needs to be as restrictive. The focus now turns to the pacing of cuts in this nascent easing cycle. In the opening statement to the presser, Macklem said its reasonable to expect further easing as long as inflation continues to ease. That puts a July cut squarely in focus and wed be inclined to bet they will ease again at the next meeting. At the same time, wed note that earlier BoC communications indicated that monetary policy easing this year would be gradual. Macklem confirmed this view in the press conference. So although back-to-back cuts may be instituted to start, were skeptical theyll continue at the same pace thereafter. We agree with market expectations that 50 basis points of additional rate relief is appropriate in 2024. In contrast, the consensus sees this marking the start of a more aggressive easing campaign. The median expectation is for a 4% policy rate by year-end. Three more cuts over the last four decisions of the year, isnt a pace of cuts we would characterize as gradual and isnt as likely to materialize barring a more material slowdown in the economy. The Banks next decision will take place on July 24th. The Summary of Deliberations for todays decision will be released on June 19th. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/boc-policy-monitor.pdf

The Bank of Canada today reduced its target for the overnight rate to 4%, with the Bank Rate at 5% and the deposit rate at 4%. The Bank is continuing its policy of balance sheet normalization. The global economy grew by about 3% in the first quarter of 2024, broadly in line with the Banks April Monetary Policy Report (MPR) projection. In the United States, the economy expanded more slowly than was expected, as weakness in exports and inventories weighed on activity. Growth in private domestic demand remained strong but eased. In the euro area, activity picked up in the first quarter of 2024. Chinas economy was also stronger in the first quarter, buoyed by exports and industrial production, although domestic demand remained weak. Inflation in most advanced economies continues to ease, although progress towards price stability is bumpy and is proceeding at different speeds across regions. Oil prices have averaged close to the MPR assumptions, and financial conditions are little changed since April. In Canada, economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7%, first-quarter GDP growth was slower than forecast in the MPR. Weaker inventory investment dampened activity. Consumption growth was solid at about 3%, and business investment and housing activity also increased. Labour market data show businesses continue to hire, although employment has been growing at a slower pace than the working-age population. Wage pressures remain but look to be moderating gradually. Overall, recent data suggest the economy is still operating in excess supply. CPI inflation eased further in April, to 2.7%. The Banks preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum. Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average. However, shelter price inflation remains high. With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points. Recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain. Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians. https://www.bankofcanada.ca/2024/06/fad-press-release-2024-06-05/