- The Bank of Canada delivered another interest rate cut, a trim to 4.25 per cent at its Wednesday policy meeting
- The bank had dropped the target for its key lending rate by a quarter percentage point, sending a signal to financial markets that inflation is getting under control
- This marks the third consecutive reduction in interest rates since June
- Inflation in Canada is currently at an annual rate of 2.5 per cent, which falls within the Bank of Canada’s target range of 1 per cent to 3 per cent and is a significant decrease from the peak of 8.1 per cent reached in June 2022
The Bank of Canada delivered another interest rate cut, a trim to 4.25 per cent at its Wednesday policy meeting.
In a media release, the Bank of Canada explained it had dropped the target for its key lending rate by a quarter percentage point, sending a signal to financial markets that inflation is getting under control.
In Q2 2024, Canada’s economy expanded by 2.1 per cent, primarily driven by government expenditure and business investments. This growth slightly exceeded forecasts from July. However, early indicators point to subdued economic activity in June and July. The labour market is showing signs of deceleration, with minimal changes in employment recently. Despite this, wage growth remains high compared with productivity levels
This marks the third consecutive reduction in interest rates since June. The decision was driven by various factors, particularly recent trends in inflation and the consumer price index. Core inflation measures, which exclude volatile prices, have been steadily declining since the beginning of the year.
In his opening remarks, the bank’s governor, Tiff Macklem, noted that the central bank is encouraged by the ongoing slowdown in price growth and now wants to see economic growth pick up again. He added it is “reasonable” to expect more rate cuts if inflation continues to ease as expected.
For investors, this rate cut could indicate a more accommodative monetary policy environment, potentially boosting market confidence and encouraging investment across different sectors. Lower interest rates generally reduce borrowing costs for businesses and consumers, which can lead to increased spending and investment.
Inflation in Canada is currently at an annual rate of 2.5 per cent, which falls within the Bank of Canada’s target range of 1 per cent to 3 per cent and is a significant decrease from the peak of 8.1 per cent reached in June 2022.
Meanwhile, the Canadian economy continues to exhibit signs of slowing down.
Statistics Canada recently reported that the economy grew at an annualized rate of 2.1 per cent in the second quarter of this year.
Although the Q2 GDP growth exceeded many forecasts, including the Bank of Canada’s own projections, the data revealed that the economy is contracting on a per-person basis, suggesting a decline in the country’s standard of living.
The latest GDP figures also indicated that the economic growth in Q2 was primarily driven by government spending rather than widespread private sector activity or consumer spending.
Data showed that Canada’s GDP remained flat in June and July, further indicating a slowing economy
The bank next meets to announce the overnight rate target on Oct. 23.
The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.