Canada’s BoC cuts rates for second consecutive month, lowers growth output
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The news: The Bank of Canada (BoC) trimmed its key interest rate for the second consecutive month, cutting it by 25 basis points to 4.5% as it expects weak household spending to lower economic growth this year.
The numbers: BoC Governor Tiff Macklem said further reductions are likely if inflation continues to cool, targeting a 2% rate by late 2025. The central bank revised its GDP growth forecast for 2024 down to 1.2% from 1.5%, citing increased household debt repayments limiting discretionary spending.
The bank said wage growth was moderating but remains elevated, despite an unemployment rate of 6.4%.
The BoC expects overall inflation at 2.6% this year, 2.1% in 2025, and 2.4% in 2026, with growth picking up in late 2024 from stronger exports and a potential recovery in household spending.
The context: The BoC had maintained its policy rate at a two-decade high of 5% for nearly a year to combat high inflation before reducing it in June.
Money markets see a 53% chance of another cut in September. Although rates seemed to trend downward now, Governor Macklem said interest rate decisions will still be data dependent.
The Canadian dollar fell 0.06% against the US dollar after the announcement.
What they said: "The dovish language in the releases paints a picture of officials who are growing more worried about the likelihood of recession," Royce Mendes, a macro strategist at Desjardins Group said.
The sources: Reuters, Bank of Canada
