Close X
Tuesday, November 26, 2024
ADVT 
National

Bank of Canada cuts key interest rate by quarter percentage point to 4.5%

Darpan News Desk The Canadian Press, 24 Jul, 2024 09:53 AM
  • Bank of Canada cuts key interest rate by quarter percentage point to 4.5%

The Bank of Canada appeared to be increasingly concerned about the risk of high interest rates slowing the economy and inflation by more than necessary as it delivered a second consecutive rate cut Wednesday. 

The central bank's decision to lower its policy rate by a quarter of a percentage point was widely expected by economists, given the continued easing in inflation and weak economic conditions. Its key interest rate now stands at 4.5 per cent.

During a news conference, governor Tiff Macklem said that as inflation edges closer to the two per cent target, the risks associated with keeping interest rates high become more important for the central bank to consider. He noted that undershooting the inflation target would be just as concerning as overshooting it. 

"That need for growth to pick up was something that was part of our decision to cut the policy interest rate today," Macklem added.

The Bank of Canada's emphasis on the state of the economy and the risk of keeping rates high for too long suggested to economists that more interest rate cuts could come sooner rather than later. 

"It is definitely a clear shift in tone," said BMO chief economist Douglas Porter.

"It almost does seem like now the bias is to continue cutting. They almost need to be persuaded not to keep cutting, I think."

Although the Canadian economy has avoided a recession, other metrics suggest it is in poor shape. The labour market in particular has weakened significantly over the last year. 

As job creation lags population growth, the unemployment rose to 6.4 per cent in June, up 1.3 per cent since April 2023. 

Several commercial banks, including BMO, expect two more interest rate cuts before the end of the year. 

Porter said although he was previously expecting a pause in September, he now thinks it's plausible the central bank cuts again during the next two decision meetings. 

Unsurprisingly, Macklem would not say what exactly the future path of rates may look like. But he did signal there may be some curveballs along the way. 

More specifically, the path back to two per cent inflation likely won’t be a straight line, he said.

“The overall weakness in the economy is pulling inflation down. At the same time, price pressures in shelter and some other services are holding inflation up,” Macklem said.

Although the governor said the Bank of Canada is “increasingly confident” that inflation is headed back to target, the push and pull between those opposing forces could affect the pace at which price growth eases.

“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate. The timing will depend on how we see these opposing forces playing out,” he said.

“In other words, we will take our monetary policy decisions one at a time.”

The Bank of Canada delivered its first interest rate cut in four years last month, marking a major turning point in its battle against high inflation. 

It was the first central bank in the G7 to lower its policy rate, though it was quickly followed by the European Central Bank.

Meanwhile, the U.S. Federal Reserve is expected to begin lowering its policy rate soon.

Macklem acknowledged that there's a limit on how much interest rates can diverge between Canada and the U.S., but said "we're still not close to that limit."

The central bank’s next interest rate decision is scheduled for Sept. 4.

The Bank of Canada also released its quarterly monetary policy report on Wednesday, which includes new forecasts that suggest inflation will return to the two per cent target next year.

Canada’s annual inflation rate fell back to 2.7 per cent in June after temporarily flaring up in May.

The Canadian economy, which the central bank notes remains weak relative to population growth, is expected to strengthen in the second half of 2024.

Real gross domestic product is expected to grow on average by 1.2 per cent this year, revised down from 1.5 per cent.

Average growth is expected to rise to 2.1 per cent in 2025 and 2.4 per cent in 2026. 

MORE National ARTICLES

Drinking in public plazas for Vancouver

Drinking in public plazas for Vancouver
Vancouver's city council is extending a program that allows people to drink alcohol in certain plazas until May 2025.  The city says the program has gone ahead successfully for four years. 

Drinking in public plazas for Vancouver

1 dead in Victoria stabbing

1 dead in Victoria stabbing
Police in Victoria are looking for witnesses to come forward after a man was fatally stabbed. Officers were called to the scene shortly before midnight last night and found the man suffering from stab wounds.  

1 dead in Victoria stabbing

B.C. doesn't know where all its groundwater is going. Experts worry as drought looms

B.C. doesn't know where all its groundwater is going. Experts worry as drought looms
Growing up on a ranch in the Columbia River Valley, water has always been part of Kat Hartwig's life, and over the years, she's noticed changes. Marshy areas her family used for irrigation or watering cattle are dry, wetlands are becoming "crunchy" rather than spongy underfoot, and snowmelt is disappearing more quickly each spring, ushering in the dry summer months, Hartwig says.

B.C. doesn't know where all its groundwater is going. Experts worry as drought looms

Health minister compares dentists' 'fears' on dental-care program to medicare rollout

Health minister compares dentists' 'fears' on dental-care program to medicare rollout
Health Minister Mark Holland says "concerns and fears" dentists are expressing about a national dental-care plan are similar to those doctors had when Canada launched medicare in the 1960s. He is defending his government's back-and-forth negotiations with dentists after dental associations said some of their members are hesitant to participate.

Health minister compares dentists' 'fears' on dental-care program to medicare rollout

Canada's spy agency saw low-level Chinese meddling activities in 2019 election: Gould

Canada's spy agency saw low-level Chinese meddling activities in 2019 election: Gould
The former minister of democratic institutions says she was told after the October 2019 federal election that Canada's spy agency had seen low-level foreign interference activities by China. Karina Gould, who held the portfolio from early 2017 to November 2019, said in a classified interview last month that the Canadian Security Intelligence Service indicated the activities were similar to what had been seen in the past.

Canada's spy agency saw low-level Chinese meddling activities in 2019 election: Gould

BoC holds key rate at 5%

BoC holds key rate at 5%
Governor Tiff Macklem says economic data since January has improved the central bank’s confidence that inflation will continue to slow, even as economic growth picks up. The governor says while the Bank of Canada is seeing the evidence it needs to begin lowering interest rates, it needs to see price pressures ease for longer to make sure the decline in inflation is sustained.  

BoC holds key rate at 5%