Bank of Canada reduces policy rate by 25 basis points to 4½%
The Bank of Canada today reduced its target for the overnight rate to 4%, with the Bank Rate at 4% and the deposit rate at 4%. The Bank is continuing its policy of balance sheet normalization.
The global economy is expected to continue expanding at an annual rate of about 3% through 2026. While inflation is still above central bank targets in most advanced economies, it is forecast to ease gradually. In the United States, the anticipated economic slowdown is materializing, with consumption growth moderating. US inflation looks to have resumed its downward path. In the euro area, growth is picking up following a weak 2023. Chinas economy is growing modestly, with weak domestic demand partially offset by strong exports. Global financial conditions have eased, with lower bond yields, buoyant equity prices, and robust corporate debt issuance. The Canadian dollar has been relatively stable and oil prices are around the levels assumed in Aprils Monetary Policy Report (MPR).
In Canada, economic growth likely picked up to about 1% through the first half of this year. However, with robust population growth of about 3%, the economys potential output is still growing faster than GDP, which means excess supply has increased. Household spending, including both consumer purchases and housing, has been weak. There are signs of slack in the labour market. The unemployment rate has risen to 6.4%, with employment continuing to grow more slowly than the labour force and job seekers taking longer to find work. Wage growth is showing some signs of moderating, but remains elevated.
GDP growth is forecast to increase in the second half of 2024 and through 2025. This reflects stronger exports and a recovery in household spending and business investment as borrowing costs ease. Residential investment is expected to grow robustly. With new government limits on admissions of non-permanent residents, population growth should slow in 2025.
https://www.bankofcanada.ca/2024/07/fad-press-release-2024-07-24/