July 24, 2024: The Bank of Canada has lowered its overnight rate to 4.5%, down by 0.25%. The Bank Rate is now 4.75%, and the deposit rate is 4.5%. This is part of their plan to balance the economy. These Bank of Canada interest rate cuts aim to address economic challenges.
Globally, the economy is growing at about 3% annually until 2026. Inflation is still high but is expected to slowly decrease. The US is seeing slower economic growth and lower inflation. Europe’s economy is improving after a weak 2023. China is growing slowly due to low domestic demand but strong exports. Financial conditions worldwide are better with lower bond yields and higher stock prices. The Canadian dollar and oil prices remain stable.
In Canada, growth was about 1.5% in the first half of 2024. However, with a 3% population growth, the economy’s potential is outpacing GDP growth, leading to more supply than demand. Household spending and housing are weak. The job market shows signs of slack with a 6.4% unemployment rate. Wage growth is slowing but still high.
GDP growth is expected to pick up in the second half of 2024 and continue through 2025 due to stronger exports, household spending, and business investments. Residential investments are also expected to grow. New government limits on non-permanent residents will slow population growth in 2025.
The Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026. The economy should absorb excess supply through 2025 and into 2026.
Inflation dropped to 2.7% in June. Core inflation has been below 3% for months, and price increases are normalizing. High shelter costs are still a major inflation driver. Inflation is also high in wage-affected services like restaurants.
Core inflation should slow to about 2.5% in the second half of 2024 and ease through 2025. CPI inflation is expected to drop below core inflation in the latter half of the year due to changes in gasoline prices. CPI inflation might rise again but will stabilize around the 2% target next year.
With easing price pressures and expected lower inflation, the Governing Council reduced the interest rate by another 0.25%. Excess supply is reducing inflation, but high prices in shelter and services are keeping inflation up. The Council is closely monitoring these factors. Future policy decisions will be based on new information and its impact on inflation. The Bank is committed to stabilizing prices for Canadians.
