The Bank of Canada has lowered its target for the overnight rate to 4.25%, with the Bank Rate set at 4.5% and the deposit rate at 4.25%. The Bank is continuing its policy of balance sheet normalization.
Globally, the economy grew by about 2.5% in the second quarter, aligning with forecasts from the Bank’s July Monetary Policy Report (MPR). In the United States, economic growth surpassed expectations, driven primarily by consumer spending, although the labor market has shown signs of slowing. In the Euro area, growth has been fueled by tourism and other service sectors, while manufacturing remains weak. Inflation is easing in both the U.S. and Europe. In China, economic growth has been hampered by weak domestic demand. Global financial conditions have further eased since July, with bond yields declining. The Canadian dollar has seen modest appreciation, mainly due to a weaker U.S. dollar. Oil prices are lower than projected in the July MPR.
Canada’s economy expanded by 2.1% in the second quarter, driven by government spending and business investment, slightly exceeding the July forecast. However, early indicators suggest that economic activity was subdued in June and July. The labor market continues to cool, with little change in employment numbers recently, though wage growth remains high compared to productivity levels.
As anticipated, inflation slowed to 2.5% in July. The Bank’s preferred core inflation measures averaged around 2.5%, with the proportion of consumer price index components rising above 3%, nearing historical averages. High inflation in shelter costs remains the largest contributor to overall inflation, although it is beginning to slow. Some other service sectors also continue to experience elevated inflation.
Given the ongoing easing of broad inflationary pressures, the Governing Council has reduced the policy interest rate by another 25 basis points. Excess supply in the economy is helping to lower inflation, but price increases in shelter and certain other services keep inflation elevated. The Governing Council is carefully evaluating these opposing inflationary forces. Future monetary policy decisions will be based on new data and its implications for the inflation outlook. The Bank remains firmly committed to restoring price stability for Canadians.
- https://www.bankofcanada.ca/2024/09/opening-statement-2024-09-04/
- https://www.bankofcanada.ca/multimedia/press-conference-policy-rate-announcement-september-2024/
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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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