The Bank of Canada (BoC) has announced a reduction in its target for the overnight rate by 25 basis points, bringing it down to 4.75%. This decision comes as part of the Bank’s ongoing policy of balance sheet normalization. The Bank Rate is now set at 5%, and the deposit rate is also at 4.75%.

Global Economic Context

The global economy grew by approximately 3% in the first quarter of 2024, aligning with projections from the BoC's April Monetary Policy Report (MPR). However, growth patterns varied significantly across regions:

United States: Economic expansion slowed more than expected due to weaker exports and inventories. Although private domestic demand remained strong, it showed signs of easing.

Euro Area: Activity picked up in the first quarter of 2024.

China: The economy saw robust performance driven by exports and industrial production, despite weak domestic demand.

Overall, inflation is easing in most advanced economies, but the pace and stability of this progress vary by region. Oil prices have remained
consistent with the assumptions made in the April MPR, and financial conditions have seen little change since then.

Canadian Economic Developments

In Canada, economic growth resumed in the first quarter of 2024 with a GDP growth of 1.7%, which was slower than forecasted. Key highlights include:

Consumption Growth: A solid 3%.

Business Investment and Housing Activity: Both saw increases.

Labour Market: Businesses continue to hire, but employment growth is lagging behind the growth of the working-age population. Wage pressures are moderating gradually.

Inflation Trends

CPI inflation further eased to 2.7% in April. The Bank’s preferred measures of core inflation also showed a slowing trend, with three-month measures indicating continued downward momentum. The breadth of price increases across CPI components has decreased, nearing historical averages, though shelter price inflation remains high.

Policy Decision and Outlook

Given the continued evidence of easing underlying inflation, the Governing Council concluded that monetary policy could be less restrictive. Consequently, the policy interest rate has been reduced by 25 basis points. The recent data has bolstered confidence that inflation will continue its path toward the 2% target. However, the BoC remains vigilant about potential risks to this outlook, closely monitoring core inflation, the balance between demand and supply, inflation expectations, wage growth, and corporate pricing behavior.

The BoC remains committed to restoring price stability for Canadians. The next scheduled date for announcing the overnight rate target is July 24, 2024, when the Bank will also publish its next full outlook for the economy and inflation.

​Stay tuned to Cory Byrne Mortgages for updates on how these changes might affect your mortgage and financial planning. Contact us today for expert advice tailored to your needs.