25 Jul

Bank of Canada lowers overnight rate .25 in July with more reductions expected to come

General

Posted by: Donna White

The quarter-point reduction brings the Bank’s overnight target rate to 4.50%, now 50 bps below its peak of 5.00%.

In his opening statement following the announcement, Governor Tiff Macklem hinted that more could be forthcoming as long as inflation continues to move in the right direction.

“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate,” he said. “The timing will depend on how we see these opposing forces playing out. In other words, we will be taking our monetary policy decisions one at a time.”

While the Bank notes that price pressures are continuing to ease, it drew attention to “some important parts of the economy—notably shelter and some other services,” that are “holding inflation up.”

In addition to announcing the rate cut, the Bank of Canada also released updated economic forecasts, projecting moderately slower GDP growth in 2024 than previously anticipated.

 

TODAY’S HIGHLIGHTS

  • New benchmark rate 4.5 (down from 5.0 in May)
  • Expected lender prime rate 6.70%
  • 5 year bond yield 3.27 (down 2.0) this effects 5 year fixed mortgage rates expected to decrease
  • Updated GDP forecasts: 
  • 1.2% in 2024 (vs. 1.5% previously)
  • 2.1% in 2025 (vs. 2.2)
  • 2.4% in 2026 (vs. 1.9%)
  • Updated inflation forecasts:
  • 2.6% in 2024 (no change)
  • 2.4% in 2025 (vs. 2.2%)
  • 2.0% in 2026 (vs. 2.1%)
28 May

More good news on inflation

General

Posted by: Donna White

The latest Statistics Canada inflation numbers have brought some more good news for consumers and anyone looking for interest rate relief.

The annualized rate of inflation in April dipped again, falling to a three-year low of 2.7%, down from 2.9% in March.

Two key components in the inflation calculation saw slowdowns last month: shelter costs, and food.  Shelter costs – which include mortgage costs and rents – increased by 6.4%, a 1 basis-point decline from March.  Grocery price inflation eased to 1.4%, a drop of 5 basis-points from March.  Gasoline prices, however, jumped 6.1%, which held the overall inflation rate somewhat higher.

Encouragingly, so-called, core inflation – which strips out prices for volatile items like food and fuel – also continued to decline.  This is the measure of inflation the Bank of Canada uses when making its interest rate decisions.  April’s average of the core inflation measures came in at 2.75%, down from 3.05% the month before.

Both headline and core inflation now fall inside the Bank’s 1.0% to 3.0% target range.

Many market watchers now believe the BoC will likely go ahead with an interest rate cut at its next meeting on June 5th.

There is one significant report that will arrive between now and then.  The latest Gross Domestic Product numbers will be released on May 31st.