Canada Housing Market

The Bank of Canada has reduced its overnight rate by 25 basis points, marking the first rate cut since the onset of the pandemic. This decision, announced on Wednesday, lowers the policy rate from 5% to 4.75%.

Background and Context

The Bank of Canada began increasing its key interest rate in March 2022 in response to higher-than-expected inflation rates, following extensive pandemic stimulus measures and global supply chain disruptions. This is the first time among major central banks, including the Bank of England, the European Central Bank, and the United States Federal Reserve, that the Canadian central bank has made a move to cut rates.

Current Economic Indicators

Recent data suggests that underlying inflation is easing sustainably, prompting this rate cut. As of April, the inflation rate stood at 2.7%, a slight decrease from 2.9% in March. The Canadian economy grew by 1.7% in the first quarter of 2024, which was below the Bank’s forecasts.

Employment and Economic Growth

Employment figures showed an increase of 90,000 jobs in April, predominantly in part-time positions. While employment growth has not kept pace with the working-age population, it has helped align the number of workers with job vacancies, easing wage pressures.

Statements from the Bank of Canada

“We’ve come a long way in our fight against inflation,” stated Bank of Canada Governor Tiff Macklem during his prepared remarks in Ottawa. He expressed increased confidence that inflation will continue moving closer to the 2% target over the coming months.

However, Macklem cautioned that risks to the inflation outlook persist, and future rate cuts will be considered on a meeting-by-meeting basis. “If we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made,” Macklem warned, highlighting the potential for uneven progress in reducing inflation.

Looking Ahead

The next rate announcement from the Bank of Canada is scheduled for July 24. As the economic landscape continues to evolve, the central bank remains vigilant in its efforts to maintain economic stability and manage inflation risks.

Source: Bank of Canada cuts key interest rate for first time in more than four years – Ottawa Business Journal (obj.ca)