Bank of Canada Cuts Interest Rate Again, Signals Potential for Further Reductions Ahead
Interest Rate Cut by 25 Basis Points
The Bank of Canada has cut its interest rate by 25 basis points for a second time in a row, bringing the rate down to 4.5%. This decision is part of the bank’s ongoing effort to balance economic growth with inflation control.
Factors Influencing Consumer Spending
Consumption growth is expected to rebound slightly to 2.25% by the end of 2025, but the outlook is impacted by a number of factors. Households with mortgages are still facing higher debt charges, though these will decrease as interest rates fall. They are also getting higher income gains from elevated interest rates on investments.
GDP Growth and Unemployment Rate
The central bank expects gross domestic product (GDP) to grow by 1.5% in the second half of this year. However, the Canadian population is expected to grow by three percent, which puts per-capita GDP in negative territory. The central bank is forecasting GDP growth of 2.1% next year and 2.4% in 2026.
Inflation Rate
The unemployment rate rose to 6.4% in June, and the number of job seekers is outpacing the supply of employment. The headline inflation rate for June was 2.7%, while core inflation has remained below three percent for months but still above the bank’s target of two percent.
Central Bank’s Concerns
The central bank is worried that household spending will continue to weaken and that the overall global economy will remain on the soft side. Geopolitical and trade tensions could also push inflation up, and the cost of services may remain elevated.
Next Policy Rate Announcement
The next policy rate announcement is scheduled for September 4, 2024.
Analysts’ Views
David Rosenberg, founder and president of Rosenberg Research & Associates Inc., said that the central bank is behind on rate cuts and has a long way to go to bring balance back to the economy. He believes that when you model out where the overnight rate should be in such a period of economic slack, it should be closer to two percent than 4.5%.
Recommended Reading
- Read the Bank of Canada’s official statement
- Scotiabank sees Bank of Canada rate at 4% by end of 2024
- Economic uncertainty is pushing Canadians to save
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