According to a press release from the Bank of Canada, in a move aimed at balancing economic growth and inflation, the Bank of Canada has reduced its target overnight interest rate by 25 basis points to 4.5%. This decision reflects the Bank’s commitment to restoring price stability for Canadians.
Global Economic Outlook
The global economy is expected to continue growing at an annual rate of about 3% through 2026, with inflation easing gradually. The United States is experiencing a slowdown, while the euro area and China are showing signs of growth. Global financial conditions have eased, with lower bond yields and robust corporate debt issuance.
Canadian Economic Outlook
Canada’s economy is expected to grow at an annual rate of:
- 1.2% in 2024
- 2.1% in 2025
- 2.4% in 2026
Household spending and business investment are forecast to recover, driven by easing borrowing costs. Residential investment is expected to grow robustly, while population growth is expected to slow in 2025.
Inflation Concerns
CPI inflation moderated to 2.7% in June, with broad inflationary pressures easing. Shelter price inflation remains high, driven by rent and mortgage interest costs. The Bank expects CPI inflation to come down below core inflation in the second half of 2024 and ease gradually through 2025.
Monetary Policy Decision
The Bank’s decision to reduce the policy interest rate reflects its assessment of the opposing forces on inflation. With broad price pressures easing and inflation expected to move closer to 2%, the Bank is carefully balancing its commitment to restoring price stability with the need to support economic growth.
Next Steps
The next scheduled date for announcing the overnight rate target is September 4, 2024. The Bank will publish its next full outlook for the economy and inflation in the Monetary Policy Report on October 23, 2024.
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