Bank of Canada has done it again! We can start enjoying an additional 25 points cut in interest rates!
At the moment, monetary policy is focused on reducing inflation, and we are observing a decrease in inflation rates. However, it may take some time to confirm if this improvement will be sustained. According to the Bank's forecast, inflation is expected to hover around 3% until the second quarter of 2024, drop to below 2.5% in the latter part of the year, and then return to the target level of 2.0% in 2025. Bank of Canada has reduced the overnight interest rate by 25 basis points as inflation eased in June, bringing the benchmark rate down to 4.5 percent. Click here for more information:
The overall inflation rate was 2.7 percent last month, down from 2.9 percent in May, which is a welcome sign of progress in controlling the rising cost of living. Additionally, the Bank of Canada has observed further signs of a slowdown in the Canadian labour market and retail sales. According to Reitze, this gave the central bank confidence that economic conditions are conducive to further price stabilization.
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Although there are still some warning signs of inflation - such as continued high wage growth and persistent core inflation measures - the Bank of Canada is expected to overlook these individual indicators and focus on an overall "softening" that justifies lowering interest rates. The most recent MNP Consumer Debt Index, released on Monday July 22nd, reveals that many Canadians are concerned about their debt levels despite a single rate cut last month, and the second cut today. More than half (56 per cent) said that interest rates may not fall quickly enough to provide financial relief, while a similar number (57 per cent) said they would need interest rates to go down “a lot” before their finances would improve.
Whether the central bank is consistently cutting rates or holding them, the easing in the economy should pave the way for clear rate adjustments in the future. THE CUTS ARE COMING.