Bank Of Canada Policy Rate Change

The Bank of Canada will announce its decision on June 5, 2020. DecisionmakersThis lowered the policy rate to 4.75% by 0.25%. This adjustment also affected the bank rate, which was set at 5 %, and the deposit rates, which were set at 4.75 %. The bank reiterated its strategy to normalize its balance sheet.

Governor Tiff MacKlem said in a Monetary Policy Decision Press Conference Opening Statement: 

“We’ve come a long way in the fight against inflation. And our confidence that inflation will continue to move closer to the 2% target has increased over recent months … Since our Monetary Policy Report in April, underlying inflation has continued to ease and economic growth has resumed. With the economy in excess supply, there is room for growth even as inflation continues to recede.”

Global Landscape

In the global context, the global economy grew by approximately 3% in the first quarter of 2024, aligning with the Bank’s earlier predictions in its April Monetary Policy Report. The United States’ growth was slower than expected due to lower exports and inventory activity. Although domestic demand was moderated, it remained robust. During the same period, the economy in the euro zone improved. China’s economy also saw growth, primarily driven by exports and industrial production, although domestic demand lagged behind. Inflation rates have continued to fall in advanced economies, although unevenly. Oil prices remained consistent with the Bank’s assumptions, and financial conditions remained stable since April.

Canadian Landscape

After stagnating for the second half of last year, the Canadian economy will resume growth in the first quarter 2024. However, the growth rate of 1.7% in the first quarter was lower than the Bank’s forecast in the Monetary Policy Report. This was due primarily to a decline in inventory investment. However, consumption, business investment and housing activity were all showing positive momentum. Employment growth continued, though at a slower pace than the working-age population. Wage pressures persist but appear to be moderated gradually. Recent data showed that the Canadian economy had an excess capacity.

In April, CPI inflation fell to 2.7%. Core inflation measures also slowed down, indicating a downward trend. The breadth of CPI components decreased but the shelter price inflation remained high.

Decision Making

The Governing Council, based on the evidence of easing inflationary forces, decided to reduce the interest rate policy by 0.25%. 

Recent data have increased confidence that inflation will approach the 2% target. However, risks to inflation outlook remain. The Council closely monitored core prices, as well as demand and supply balances in the economy, inflation expectation, wage growth and corporate pricing behavior. The Bank reiterated their commitment to restoring Canadians’ price stability.

The next announcement regarding the overnight rate target is scheduled for July 24, 2024, alongside the release of the Bank’s comprehensive economic and inflation outlook in the Monetary Policy Report.