On June 5, 2024, the Bank of Canada announced its decision to lower its policy rate by 0.25%, bringing it to 4.75%. This adjustment also affected the Bank Rate, set at 5%, and the deposit rate, set at 4.75%. The bank reaffirmed its strategy of normalizing its balance sheet.
Governor Tiff Macklem stated 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 experienced slower growth than anticipated due to decreased exports and inventory activity. However, domestic demand remained robust, although it was somewhat moderated. In the euro area, economic activity improved during the same period. China’s economy also saw growth, primarily driven by exports and industrial production, although domestic demand lagged behind. Inflation rates in advanced economies continued to decline, albeit unevenly across regions. Oil prices remained consistent with the Bank’s assumptions, and financial conditions remained stable since April.
Canadian Landscape
In Canada, economic growth resumed in the first quarter of 2024 after stagnating in the latter half of the previous year. 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 primarily due to weaker inventory investment, while consumption, business investment, and housing activity all showed positive momentum. Employment continued to grow, although at a slower pace compared to the working-age population. Wage pressures persisted but appeared to be moderating gradually. Overall, recent data indicated that the Canadian economy still had excess capacity.
In April, CPI inflation decreased to 2.7%. Core inflation measures also slowed, indicating ongoing downward momentum. Although the breadth of price increases across CPI components decreased, shelter price inflation remained high.
Decision
Considering the evidence of easing inflationary pressures, the Governing Council decided to reduce the policy interest rate by 0.25%.
Recent data increased confidence that inflation would approach the 2% target, although risks to the inflation outlook remained. The Council closely monitored core inflation, as well as the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank reiterated its commitment to restoring price stability for Canadians.
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.