Canada: Bank of Canada decreases rates in September
At its meeting on 4 September, the Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.25%.
The key domestic factors influencing the Central Bank’s decision were a recent moderation in price pressures, excess supply in the economy, and a softening labor market. Regarding price pressures, headline inflation has been well within the Bank’s 1.0%–3.0% target range so far this year.
The Bank of Canada did not provide explicit forward guidance on the future direction of interest rates. Most of our panelists see 25 or 50 basis points of further rate cuts later this year, given that inflation is likely to remain mild ahead and that economic activity is forecast to slow in H2 from H1.
On the outlook, Desjardins’ Randall Bartlett said:
“Governor Macklem recognized that there is downside risk to the Bank’s extremely optimistic outlook for Q3 real GDP growth. This is happening in a context where inflation is closing in on the target, […] While this may increase the chances of an accelerated pace of rate cuts, our base case forecast still sees 25 basis point rate reductions in October and December of this year.”