At Last - The Bank Rate Eases

Jun 5, 2024 | Economic News and Forecasts

June 5, 2024 - The Bank of Canada (BoC) today cut its policy rate by 25 basis points to 4.75%. In a dovishly hawkish announcement (if such a thing is possible), the Bank explained that it is easing rates due to falling inflation and a softening economy but said that there are still risks to the inflation outlook. It stressed its "commitment to restoring price stability for Canadians" and noted that monetary policy "no longer needs to be as restrictive" (emphasis added here). In other words, it is letting up on the brakes without indicating that they have the need (or the will) to step on the gas, and is watching for unexpected surprises.

The BoC noted that the global economy grew by about 3% in Q1, although the Canadian and US economies both grew more slowly than expected. In Canada, employment has been growing at a slower pace than the working age population and wage increases are moderating gradually. Q1 GDP in Canada grrew by 1.7%.

This move was fairly widely expected and, barring anything untoward in the inflation or economic spheres, is the first of what we expect to be three or four rate decreases this year. In doing this, they are ahead of the US Federal Reserve Board's Federal Open Market Committee (FOMC), which sets the US policy rate. Pundits have noted that this may lead to a drop in the value of the Canadian dollar against US currency, especially if the FOMC allows a few months to elapse before lowering its rate.

The BoC's announcement is available here.

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