Close X
Sunday, November 24, 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

Minimum wage going up June 1st

Minimum wage going up June 1st
B-C's minimum hourly wage is increasing to 17 dollars and 40 cents, up from 16.75. The Labour Ministry says the 3.9 per cent increase kicks in on Saturday. It says in a statement that the increase will help about 240-thousand workers in the province who currently earn less than 17.40 an hour.

Minimum wage going up June 1st

Israel close to approving Gaza reunification program before Rafah invasion: Miller

Israel close to approving Gaza reunification program before Rafah invasion: Miller
Immigration Minister Marc Miller says Israel seemed to be on the verge of approving a program to get Palestinian relatives of Canadians out of the Gaza Strip before the country's invasion of the town of Rafah. His comments come amid mounting criticism over measures introduced months ago that were meant to bring relatives of Canadians from conflict zones in the Gaza Strip and Sudan to safety.

Israel close to approving Gaza reunification program before Rafah invasion: Miller

Vancouver Island man charged with child luring and making sexual abuse material: RCMP

Vancouver Island man charged with child luring and making sexual abuse material: RCMP
Police in British Columbia say a man from Vancouver Island has been arrested and charged with child exploitation offences following a tip from American authorities. RCMP say in a statement that the B.C. Integrated Child Exploitation Unit received information from U.S. Homeland Security Investigations last September about a suspect who was allegedly exploiting children using a social media application. 

Vancouver Island man charged with child luring and making sexual abuse material: RCMP

Humboldt Broncos families fight to keep Saskatchewan government named in lawsuit

Humboldt Broncos families fight to keep Saskatchewan government named in lawsuit
Lawyers for several Humboldt Broncos families are in court fighting a bid from the government of Saskatchewan to have it removed as a defendant in a lawsuit over the 2018 deadly bus crash. Five families are suing over the bus crash, alleging the province knew the rural intersection where it happened had problems with visibility but did nothing to fix it.

Humboldt Broncos families fight to keep Saskatchewan government named in lawsuit

Darpan 10 with Mr. Amjad Bajwa, President of Cricket Canada

Darpan 10 with Mr. Amjad Bajwa, President of Cricket Canada
We sat down with Amjad Bajwa, the newly elected President of Cricket Canada, to discuss the future of cricket in Canada. As one of the country's fastest-growing sports, we explore his plans and visions for advancing the game nationwide.

Darpan 10 with Mr. Amjad Bajwa, President of Cricket Canada

Man charged in home invasion

Man charged in home invasion
A man charged in the death of a 78-year-old woman in Vancouver has pleaded guilty to manslaughter. The man entered the plea in B-C Supreme Court this week in connection with a January 2021 home invasion that killed the senior.

Man charged in home invasion