Bank of Canada Cuts Policy Rate for First Time Since March 2020
In a scheduled announcement on Wednesday, June
5, 2024, the Bank of Canada decided to reduce its target for the overnight
lending rate from 5% to 4.75%. The move was widely expected by financial
markets and marked the Bank’s first rate reduction since the onset of the
pandemic four years ago, bringing rates down to where they stood exactly one
year ago.
The Bank noted that Canada’s economy picked
up in the first quarter of 2024 but still came in weaker than anticipated.
While growth in consumer spending, business investment, and the housing market
remained solid, the Bank once again made note of the fact that employment has
been rising at a slower pace than working age population growth.
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 are showing signs of downward
momentum and are close to historical averages.
With
inflation now back in the Bank’s preferred range of 1-3% and increased
confidence that inflation continues to move toward its 2% target, the Bank
stated, “monetary policy no longer needs to be as restrictive” in its
decision to lower the policy rate by 25 basis points.
The
Bank of Canada’s will make its next scheduled interest rate announcement on July
24, 2024, as well as publish its full outlook for the economy and inflation in
its next Monetary Policy Report.
Bank of Canada Cuts Policy Rate for First Time Since March 2020
In a scheduled announcement on Wednesday, June
5, 2024, the Bank of Canada decided to reduce its target for the overnight
lending rate from 5% to 4.75%. The move was widely expected by financial
markets and marked the Bank’s first rate reduction since the onset of the
pandemic four years ago, bringing rates down to where they stood exactly one
year ago.
The Bank noted that Canada’s economy picked
up in the first quarter of 2024 but still came in weaker than anticipated.
While growth in consumer spending, business investment, and the housing market
remained solid, the Bank once again made note of the fact that employment has
been rising at a slower pace than working age population growth.
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 are showing signs of downward
momentum and are close to historical averages.
With
inflation now back in the Bank’s preferred range of 1-3% and increased
confidence that inflation continues to move toward its 2% target, the Bank
stated, “monetary policy no longer needs to be as restrictive” in its
decision to lower the policy rate by 25 basis points.
The
Bank of Canada’s will make its next scheduled interest rate announcement on July
24, 2024, as well as publish its full outlook for the economy and inflation in
its next Monetary Policy Report.
