The Bank of Canada has reduced interest rates by 0.50%, that is an overnight rate to 3.75%, while continuing its balance sheet normalization policy. Here’s a quick breakdown of their latest update:
- Global economy: Growth is expected at around 3% over the next two years. The U.S. economy is stronger than forecasted, while China’s growth remains weak. The euro area’s growth has been slow but should pick up slightly next year.
- Inflation: Inflation in advanced economies has come down, aligning with central bank targets. Global oil prices have also dropped.
- The economy grew by 2% in the first half of the year, with projected growth of 1.75% for the second half. While overall growth is steady, consumer spending on a per-person basis has slowed, signaling some caution among households.
- The labour market remains soft, with an unemployment rate of 6.5% in September. Population growth, particularly from immigration, has expanded the labour force, but hiring has been modest. This has been especially tough for young people and newcomers, who are facing more challenges in finding jobs.
- Wage growth is still high compared to productivity, meaning wages are rising faster than the efficiency of output. While this is good for workers in the short term, it poses risks if productivity doesn’t catch up.
- Housing market continues to be a concern, as shelter costs remain high, although they’ve begun to ease slightly. Strong demand for housing is expected to continue driving up residential investment, especially in home renovations and sales.
- GDP growth is expected to reach 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026.
- Inflation has dropped to 1.6%, and the Bank’s core inflation measures are below 2.5%.
To support economic growth, the Bank has lowered the policy rate by 50 basis points and may reduce it further, depending on economic conditions.
