Close X
Monday, November 11, 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

Lawyer says RCMP bullying claims in Surrey policing case could cause 'undue' concern

Lawyer says RCMP bullying claims in Surrey policing case could cause 'undue' concern
A B.C. government lawyer says court documents in a policing dispute with the City of Surrey contain significant allegations of harassment and bullying by the RCMP that should be kept from public view because they could cause "undue public concern." Trevor Bant was speaking at the start of a hearing on Surrey's petition challenging a direction by Public Safety Minister Mike Farnworth that the city transition from the RCMP to the municipal Surrey Police Service.

Lawyer says RCMP bullying claims in Surrey policing case could cause 'undue' concern

White Rock stabbing suspect arrested

White Rock stabbing suspect arrested
A statement from the Integrated Homicide Investigation Team says 27-year-old Dimitri Nelson Hyacinth has been charged over the alleged assault of a 28-year man, Jatinder Singh, along the White Rock pier and promenade on April 21st. Two days later, 26-year-old Kulwinder Singh Sohi was fatally stabbed in the same area, though R-C-M-P did not provide an update on any further charges.

White Rock stabbing suspect arrested

B.C. Conservatives' 'biological sex' sports bill is quickly quashed in legislature

B.C. Conservatives' 'biological sex' sports bill is quickly quashed in legislature
A proposal by British Columbia Conservative Leader John Rustad to use "biological sex" to classify participants in publicly funded sports teams and events, effectively banning transgender athletes, didn't get to first base.

B.C. Conservatives' 'biological sex' sports bill is quickly quashed in legislature

Alberta sexual assault centres to be consulted on spending additional $10 million

Alberta sexual assault centres to be consulted on spending additional $10 million
The Alberta government will consult with the province's sexual assault centres to determine how to spend an additional $10 million over the next three years.

Alberta sexual assault centres to be consulted on spending additional $10 million

Alberta pulls funding help for low-income transit riders in Edmonton and Calgary

Alberta pulls funding help for low-income transit riders in Edmonton and Calgary
The mayors of Alberta's two biggest cities say the province has pulled $12 million in funding meant to help low-income residents access public transit.

Alberta pulls funding help for low-income transit riders in Edmonton and Calgary

Residential Schools Lawsuit

Residential Schools Lawsuit
The lawyer for a residential school survivor leading a proposed class-action lawsuit against the Catholic Church and one of its priests says legal action is a fallback to get everyone to come together and resolve the issue.

Residential Schools Lawsuit