Close X
Monday, November 25, 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

B.C. launches portal to help find hotel rooms for emergency evacuees

B.C. launches portal to help find hotel rooms for emergency evacuees
British Columbia's hotel association says a new central booking portal will help speed up the process of finding places to stay for emergency evacuees. A statement says the system launching in June will provide provincial emergency support staff with live information on room availability, eliminating the need to call hotels to find out. 

B.C. launches portal to help find hotel rooms for emergency evacuees

Woman with a knife arrested at New Westminster post-secondary school

Woman with a knife arrested at New Westminster post-secondary school
Police in New Westminster, B.C., say they were called to a post-secondary school in the city when staff reported that a woman armed with a knife was inside the building. The woman was not a student at the institution and police say students and staff feared for their safety. 

Woman with a knife arrested at New Westminster post-secondary school

B.C's auditor general to review government's response to 2021 Lytton wildfire

B.C's auditor general to review government's response to 2021 Lytton wildfire
British Columbia's auditor general says his office is doing a review of the province's response to the 2021 wildfire that devastated the community of Lytton, B.C. Michael Pickup says in a video statement that the report will focus on the B.C. government's roles and responsibilities for disaster recovery, its support for Lytton, including funding, challenges that came with rebuilding and how the province can improve.

B.C's auditor general to review government's response to 2021 Lytton wildfire

LNG company's plan for floating work camp is rejected by Squamish, B.C.

LNG company's plan for floating work camp is rejected by Squamish, B.C.
Plans to use a renovated cruise ship to house more than 600 workers as they build a liquefied natural gas facility near Squamish, B.C., have been voted down by the local council. The ship arrived in B.C. waters in January after a 40-day journey from Estonia, where it had sheltered Ukrainian refugees, but Woodfibre LNG didn't obtain a permit from the district to operate the so-called "floatel."

LNG company's plan for floating work camp is rejected by Squamish, B.C.

Second pro-Palestinian protest camp set up at UVIC

Second pro-Palestinian protest camp set up at UVIC
A second pro-Palestinian protest camp has been set up at a university in B-C, two days after the establishment of the first camp at U-B-C in Vancouver. Protesters say students at the new encampment at the University of Victoria are demanding that the school divest itself from investments linked to Israel.  

Second pro-Palestinian protest camp set up at UVIC

B.C. to provide $155.7 million to recruit and retain specialized health workers

B.C. to provide $155.7 million to recruit and retain specialized health workers
The British Columbia government is spending more money to recruit and retain health-science workers, especially those in rural and remote communities.  Health Minister Adrian Dix says $155.7 million has been set aside at a time when B.C. has a "significantly increasing population" and more skilled health-care staff are needed, particularly in remote communities.

B.C. to provide $155.7 million to recruit and retain specialized health workers