The Bank of Canada has announced a reduction in its target for the overnight rate to 4¾%, with the Bank Rate set at 5% and the deposit rate at 4¾%. This decision is part of the Bank’s ongoing strategy for balance sheet normalization.
Global Economic Context
In the first quarter of 2024, the global economy grew by approximately 3%, aligning with the projections in the Bank’s April Monetary Policy Report (MPR). The U.S. economy, however, expanded more slowly than anticipated due to weaknesses in exports and inventories. Growth in private domestic demand remained strong but showed signs of easing. The euro area saw an uptick in activity during this period, while China’s economy strengthened, driven by exports and industrial production, despite weak domestic demand. Inflation in advanced economies continues to ease, though progress towards price stability varies across regions. Oil prices have stayed close to the MPR assumptions, with little change in financial conditions since April.
Canadian Economic Performance
After a slowdown in the latter half of last year, Canada’s economy resumed growth in the first quarter of 2024, albeit at a slower pace than forecasted, with a GDP growth of 1.7%. Activity was dampened by weaker inventory investment. Nonetheless, consumption grew solidly at about 3%, and there were increases in business investment and housing activity. The labor market remains active, with businesses continuing to hire, though employment growth lags behind the rise in the working-age population. Wage pressures persist but are gradually moderating. Overall, recent data indicate that the economy is still operating with excess supply.
Inflation Trends
CPI inflation further eased to 2.7% in April. The Bank’s preferred core inflation measures also showed a slowdown, with three-month indicators suggesting continued downward momentum. The breadth of price increases across CPI components has narrowed, nearing historical averages, although shelter price inflation remains high.
Monetary Policy Adjustments
With clear evidence of easing underlying inflation, the Governing Council decided that the monetary policy could be less restrictive and thus reduced the policy interest rate by 25 basis points. Recent data has bolstered confidence that inflation will continue to move towards the 2% target. However, risks to the inflation outlook remain, and the Governing Council is closely monitoring core inflation trends, the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behavior. The Bank remains committed to restoring price stability for Canadians.
Future Announcements
The next scheduled announcement for the overnight rate target is on July 24, 2024. At that time, the Bank will also release its comprehensive economic and inflation outlook, including an assessment of potential risks, in the MPR.
Contact Us
Have questions about how these changes might impact your real estate decisions? Feel free to reach out! I’m here to provide personalized advice and support.
- Website: Jennifer Plett Real Estate
- Email: info@jenniferplett.com
- Phone: (123) 456-7890
- Office Address: 123 Real Estate St, Winnipeg, MB, Canada