The Bank of Canada cut its key policy rate for the second consecutive month, slicing away 25 basis points to achieve a 4.5% level.
In announcing the rate cut, the central bank predicted Canadian GDP growth to increase in the second half of 2024 and into 2025, adding that “residential investment is expected to grow robustly” while population growth is expected to slow due to new government immigration limits.
“Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026,” said the central bank in a statement, although it also warned that “shelter price inflation remains high, driven by rent and mortgage interest costs, and is still the biggest contributor to total inflation. Inflation is also elevated in services that are closely affected by wages, such as restaurants and personal care.”
Nonetheless, the central bank offered an optimistic view of Canada’s near future.
“We are increasingly confident that the ingredients to bring inflation back to target are in place,” said Bank of Canada Governor Tiff Macklem in a press conference, adding, “We need growth to pick up so inflation does not fall too much … The risk that inflation comes in higher than expected has to be increasingly balanced against the risk that the economy and inflation could be weaker than expected.”
The Federal Reserve will announce its next rates decision on July 31, with most observers expecting rates to remain untouched.
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