Bank of Canada cuts interest rate in October 2024
As the world economy continues to grow, the Bank of Canada significantly reduced its key lending rate on Wednesday, going from on 4.25% to 3.75%.
In a statement, Bank of Canada Governor Tiff Macklem stated, “We took a bigger step today because inflation is now back to the 2% target and we want to keep it close to the target.”
The Bank of Canada is expected to make its next interest rate announcement on December 4, 2024.
Key highlights from the announcement
Global economic overview
Over the next two years, the world economy is expected to grow at a rate of roughly 3%. While China’s outlook is still bad, growth in the United States is now anticipated to be stronger than previously predicted. Although the euro area’s growth has been slow, a modest recovery is anticipated in 2024. Global financial conditions have improved, and inflation in advanced economies has dropped, coming closer to central bank targets. Notably, oil prices around the world are roughly $10 less than what was anticipated in July.
Canadian economic growth
In the first half of 2024, Canada’s economy expanded by about 2%, and the Bank anticipates that growth will moderate slightly to 1.75% in the second half of the year. The labour force is still growing due to population growth, but hiring has been slow, with unemployment standing at 6.5% in September. Although consumer spending has increased, per capita spending is decreasing. The opening of the Trans Mountain Expansion pipeline has contributed to an increase in exports. The Bank projects a gradual improvement in economic activity over the forecast period, with GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026.
Inflation trends
From 2.7% in June to 1.6% in September, Canada’s inflation rate has drastically decreased. Although they are beginning to decline, high housing costs are still a major contributor to inflation. Gasoline prices have decreased due to lower global oil prices, and inflation in many goods and services has decreased due to an excess of supply in the economy. The Bank’s preferred indicator, core inflation, is currently below 2.5%. Over the projection horizon, inflation is anticipated to stay close to the Bank’s 2% target as inflationary pressures abate.
Monetary policy decision
The Bank’s Governing Council decided to lower the policy rate by 50 basis points to 3.75% in view of the progress made in bringing inflation closer to its target and the continued excess supply in the economy. The Council stated that if economic conditions develop as anticipated, additional rate cuts might be contemplated; however, future decisions will be based on data and will be made “one meeting at a time.”Share:
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