Commentaries /
The Bank of Canada continues cutting interest rates
The Bank of Canada continues cutting interest rates
Today the Bank of Canada lowered its policy rate by 25 basis points for the third consecutive meeting.
Stephen Tapp
Rates need to come down and it’s becoming clear that the economy is on shakier ground than it was six months ago. I didn’t see anything in the decision on presenting a clear path for rates but it’s pretty obvious that policy will unwind at the next few meetings to support economic growth.
- Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce
KEY TAKEAWAYS
- Today the Bank of Canada lowered its policy rate by 25 basis points (bps) for the third consecutive meeting; it now sits at 4.25%. This move was widely expected. In fact, markets had more-than-fully priced it in before the announcement. (The 28 bps of priced-in easing implied a small chance (~12%) of an even larger 50 bps cut.
- With inflation risks receding, central bankers are now more focused on the risks that high interest rates pose for a fundamentally weak economy. Indeed, in the press conference Governor Macklem said, “we need to increasingly guard against the risk that the economy is too weak and inflation falls too much.”
- Inflation has slowed back into the Bank’s inflation target control range for the past seven months. At the same time, Canada’s economy continues to perform below its potential, as slack in the labour market grows and weak consumer spending per capita persists. Recent indicators are coming in below the Bank’s forecast, which sees growth picking up in the second half of 2024.
- Looking ahead: Our base case has interest rates falling at each Bank of Canada announcement, until they’re back to a less restrictive policy rate ─ at around 3% or slightly lower by the summer of 2025. The big question is: Will a steady, concerted pace of 25 bps each time be enough, or if conditions deteriorate, will the Bank need to be more aggressive and deliver a half point cut at some point along the way?
- Meanwhile south of the boarder, markets expect the U.S. Federal Reserve to start cutting rates on September 18, with at least one 50bps cut coming before the end of this year. All told, Canadian businesses can expect borrowing costs to continue easing going forward, but there’ll be some bumps along the way as markets over-react to incoming data.
Other Commentaries
September 2022 Consumer Price Index data: Food and services prices still rising, no progress on core inflation
Our Chief Economist, Stephen Tapp, looks at Canada’s headline inflation, which edged down for the third month in a row. There was no progress on “core” inflation, which held steady at 5%.
August 2022 Consumer Price Index data: Finally some good news on Canadian inflation.
Stephen Tapp, our Chief Economist, looks at Canada’s headline inflation for August, which fell for the second straight month. Core inflation and services measures have also finally started to slow.
July 2022 Consumer Price Index data: Canada’s inflation finally turns a corner with falling gas prices, but core pressures remain
Our Chief Economist, Stephen Tapp, looks at Canada’s headline inflation, which is finally showing signs of cooling off.