Bank of Canada to Cut Interest Rates in September with Two More Reductions Expected This Year

As we approach the fall of 2024, the Bank of Canada (BoC) is expected to continue its recent trend of interest rate reductions. Following a reduction in the overnight rate by 25 basis points in both June and July, the BoC is projected to cut the rate by another 25 basis points on September 4, bringing it down to 4.25%. This is part of a broader trend anticipated for the rest of the year, with further cuts expected in October and December, potentially lowering the rate to 3.75% by year-end.

This shift in monetary policy comes in response to a notable easing of inflation, which fell to 2.5% in July, moving closer to the BoC's target of 2%. Additionally, recent labour market data suggest persistent weakness, further supporting the case for continued rate reductions.

Governor Tiff Macklem has indicated a potential shift in focus from controlling inflation to stimulating economic growth, as the Canadian economy shows signs of strain compared to its U.S. counterpart. This dovish stance has led many economists to predict that the BoC will maintain a gradual easing trajectory into early 2025.

In contrast, the U.S. Federal Reserve is expected to start its rate cuts in the near future, with a projected reduction of 25 basis points at each of its remaining meetings this year. Despite the Fed's anticipated easing, the Canadian dollar has strengthened by approximately 3% in August, hitting a five-month high of 1.35 against the U.S. dollar. This appreciation has helped mitigate risks associated with imported inflation.

Looking ahead, economists foresee the BoC reducing its key rate by a cumulative 100 basis points in 2025, reaching 2.75% by the end of the year. This is slightly lower than previous expectations and reflects a more optimistic outlook for the Canadian economy's recovery.

As always, we will continue to monitor these developments closely and assess their implications for the financial landscape. Stay tuned for further updates and analysis.

What do economists predict for 2025? Dive into the latest updates and insights on our blog.

https://ewgroup.ca/bank-of-canada-to-cut-interest-rates-in-september-with-two-more-reductions-expected-this-year/

East to West Group: Your Partner in Commercial Mortgages and Equipment Financing in Canada.