In a move widely anticipated by financial markets, the Bank of Canada has reduced its overnight lending rate target from 5% to 4.75%. This marks the first rate cut since the COVID-19 pandemic began four years ago, bringing the rate back to its level from one year prior.
During a scheduled announcement on Wednesday, June 5, 2024, the Bank revealed that while Canada’s economy saw some growth in the first quarter of 2024, it fell short of expectations. Despite robust consumer spending, business investment, and a solid housing market, the Bank highlighted that employment growth has not kept pace with the growth of the working-age population.
The Bank remains focused on high shelter costs as a major driver of inflation. However, it also noted that both headline and core inflation measures are showing signs of decline and are nearing historical norms.
With inflation now within the Bank’s preferred range of 1-3% and increased confidence that it is moving toward the 2% target, the Bank stated that "monetary policy no longer needs to be as restrictive." This rationale underpinned the decision to lower the policy rate by 25 basis points.
The Bank of Canada's next scheduled interest rate announcement is set for July 24, 2024, where it will also release its comprehensive outlook for the economy and inflation in its upcoming Monetary Policy Report.