Today, the Bank of Canada reduced its target for the overnight rate to 4.5%, with the Bank Rate at 4.75% and the deposit rate at 4.5%.

Sources: CBC News, Bank of Canada

This move is part of the ongoing balance sheet normalization policy.

Global Economic Outlook:

• The global economy is projected to grow annually by about 3% through 2026.
• Inflation remains above central bank targets in most advanced economies but is expected to decrease gradually.
• The US is experiencing an economic slowdown with moderated consumption growth and a resumed decline in inflation.
• The euro area shows signs of growth after a weak 2023.
• China’s economy is growing modestly, with strong exports balancing weak domestic demand.
• Global financial conditions have eased with lower bond yields, buoyant equity prices, and robust corporate debt issuance.
• The Canadian dollar remains stable, and oil prices are at levels projected in April’s Monetary Policy Report (MPR).

Canadian Economic Outlook:

• Economic growth is estimated at about 1.5% for the first half of this year.
• With a population growth of about 3%, the economy’s potential output is outpacing GDP growth, increasing excess supply.
• Household spending, including consumer purchases and housing, remains weak.
• Signs of slack in the labor market include a rise in the unemployment rate to 6.4% and slower employment growth.
• Wage growth shows signs of moderation but remains high.

Forecast:

• GDP growth is expected to increase in the second half of 2024 and through 2025, driven by stronger exports and a recovery in household spending and business investment.
• Residential investment is projected to grow robustly.
• New government limits on non-permanent resident admissions should slow population growth in 2025.
• The Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026, with the economy gradually absorbing excess supply.

Inflation:

• CPI inflation moderated to 2.7% in June, with broad inflationary pressures easing.
• Core inflation measures have been below 3% for several months.
• Shelter price inflation remains high, driven by rent and mortgage interest costs.
• Inflation in wage-sensitive services, such as restaurants and personal care, remains elevated.
• Core inflation is expected to slow to about 2.5% in the second half of 2024 and ease through 2025.
• CPI inflation is anticipated to settle around the 2% target next year.

Monetary Policy:

• The Bank has reduced the policy interest rate by 25 basis points to address ongoing excess supply and easing inflationary pressures.
• Price pressures in some sectors, notably shelter and certain services, continue to hold inflation up.
• The Governing Council will guide monetary policy decisions based on incoming information and its assessment of inflation outlook implications.
• The Bank of Canada remains committed to restoring price stability for Canadians.

Information Note:
The next announcement for the overnight rate target is scheduled for September 4, 2024, and the next full economic and inflation outlook, including risk assessments, will be published in the MPR on October 23, 2024.

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