Canada: Bank of Canada decreases rates in July
At its meeting on 24 July, the Bank of Canada (BOC) reduced its target for the overnight rate to 4.50% from 4.75%, following a same-sized rate cut in June.
The Central Bank’s decision was driven by easing headline and core inflation so far this year, with both indicators within the Bank’s 1.0%–3.0% target range. Moreover, the Bank judged that headline and core inflation would continue to fall towards the central 2.0% target going forward. Coupled with signs of excess supply and labor market slack, this gave the BOC space to make its monetary stance less restrictive.
The Bank of Canada did not provide specific forward guidance on the future direction of interest rates. Our panelists’ projections are for further rate cuts later in 2024 as inflation should continue to trend down.
On interest rates going forward, TD Economics’ Rishi Sondhi said:
“In our June outlook, we’d incorporated a year-end target of the 4.25%, with the final cut set to take place in the fourth quarter. While the ultimate destination may remain the same, the dovish lean in today’s Statement raises the risk of more easing by year-end than what we’ve penciled in.”
Desjardins’ Randall Bartlett said:
“The dovish language in the releases paints a picture of officials who are growing more worried about the likelihood of recession. As a result, we are pulling forward our rate cut expectations to forecast another move in September. We now expect the Bank of Canada to reduce rates in September and then again in October before pausing in December.”