The Bank of Canada reduced its target once again for the overnight lending rate from 4.75% to 4.5%. The move was widely expected by financial markets and marked the Bank’s second rate reduction since the onset of the pandemic four years ago, bringing rates down to where they stood in April 2023.
We have lowered our policy interest rate to 4.50%.
— Bank of Canada (@bankofcanada) July 24, 2024
Learn more: https://t.co/rKj3xkejqF#economy #cdnecon pic.twitter.com/kXgwZWJeaJ
In a scheduled announcement on July 24, 2024, the Bank noted that Canada’s economy picked up in the first half of 2024 but at a slower pace than population growth, while consumer spending and housing are currently showing signs of weakness. The Bank continues to note that employment has been rising at a slower pace than working age population growth, of which the latter is expected to grow at a stronger pace than previously expected.
According to the Bank, Canadian economic growth is forecast to pick up over the remainder of this year and over the course of 2025 “as borrowing costs ease”, implying a continued unwinding of tightness in monetary policy that should provide a boost to exports, household spending, and business and residential investment.
The Bank continues to focus on elevated shelter costs as a significant contributor to inflation. However, it also noted that both headline and core measures of inflation have moderated and are close to historical norms.
In its Monetary Policy Report, the Bank also made special note of several challenges impacting housing supply growth:
- municipal zoning restrictions;
- high development fees;
- time-consuming and expensive permitting processes; and
- shortages of skilled construction workers
Although excess supply in the economy is lowering inflation, the Bank is also monitoring shelter and services costs that are pushing inflation in the opposite direction. The Bank has stated that “monetary policy decisions will be guided by incoming information” and their assessment of its implications for the inflation outlook.
The Bank of Canada will make its next scheduled interest rate announcement on Wednesday, September 4, 2024, and will publish its full outlook for the economy and inflation in its next Monetary Policy Report on Wednesday, October 23, 2024.
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