Bank of Canada cut its key interest rate target

The Bank of Canada cut its key interest rate target by 25 basis points to 4.75 per cent on Wednesday.

The Bank of Canada today (June 5) reduced its target for the overnight rate to 4.75 per cent, with the Bank Rate at five per cent and the deposit rate at 4.75 per cent.

The Bank said it is continuing its “policy of balance sheet normalization.”

The global economy grew by about three per cent in the first quarter of 2024, the Bank of Canada said in its statement.

In the United States, the economy expanded more slowly than was expected, as weakness in exports and inventories weighed on activity. Growth in private domestic demand remained strong but eased. In the euro area, activity picked up in the first quarter of 2024.

China’s economy was also stronger in the first quarter, buoyed by exports and industrial production, although domestic demand remained weak.

Inflation in most advanced economies continues to ease, although progress towards price stability is bumpy and is proceeding at different speeds across regions.

In Canada, economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7 per cent, first-quarter GDP growth was slower than forecast. Weaker inventory investment dampened activity.

Consumption growth was solid at about three per cent, and business investment and housing activity also increased. Labour market data show businesses continue to hire, although employment has been growing at a slower pace than the working-age population. Wage pressures remain but look to be moderating gradually. Overall, recent data suggest the economy is still operating in excess supply.

The Consumer Price Index inflation eased further in April, to 2.7 per cent.

The Bank’s preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum. Indicators of the breadth of price increases across components of the Consumer Price Index have moved down further and are near their historical average. However, shelter price inflation remains high.

With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points.

Recent data has increased our confidence that inflation will continue to move towards the two per cent target.

Nonetheless, risks to the inflation outlook remain. Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.

This report by The Canadian Press was first published June 5, 2024.

The Canadian Press