The Bank of Canada has reduced its target overnight rate by 25 basis points, bringing it to 4.25%.

Source: Bank of Canada

The Bank Rate now stands at 4.5%, with the deposit rate also at 4.25%. This move is part of the Bank’s ongoing balance sheet normalization strategy.

Globally, the economy grew by around 2.5% in the second quarter, in line with the Bank’s July Monetary Policy Report (MPR). The U.S. saw stronger-than-expected growth driven by consumer spending, though its labor market has softened. In the Eurozone, tourism and services boosted growth, but manufacturing remained weak. Inflation continues to moderate in both regions. In China, sluggish domestic demand has weighed on economic growth. Global financial conditions have improved since July, as bond yields declined, and the Canadian dollar appreciated modestly, reflecting a weaker U.S. dollar. Oil prices have also fallen below July MPR estimates.

In Canada, the economy grew by 2.1% in the second quarter, led by government spending and business investment. Although this was slightly higher than forecast, early indicators show that economic activity slowed in June and July. The labor market has also cooled, with minimal employment changes recently. However, wage growth remains high compared to productivity.

Inflation eased to 2.5% in July as expected. The Bank’s core inflation measures averaged around 2.5%, and the percentage of Consumer Price Index components rising above 3% is now at a more typical level. Shelter prices continue to be the largest inflation driver but are showing signs of slowing, while inflation in some service sectors remains high.

In response to broad inflationary easing, the Bank’s Governing Council reduced the policy rate by another 25 basis points. While excess supply in the economy is pushing inflation down, shelter and some services are keeping inflation elevated. The Governing Council is carefully monitoring these opposing forces. Future monetary policy decisions will be informed by incoming data and their implications for the inflation outlook. The Bank remains committed to restoring price stability for Canadians.

Information Note
The next policy rate announcement is scheduled for October 23, 2024, alongside the Bank’s updated economic and inflation projections in its next MPR.

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