Canada Housing Market

The Bank of Canada announced a cut to its key interest rate this morning, reducing it by a quarter percentage point to 4.5%. This marks the second consecutive rate cut as the central bank responds to easing inflationary pressures and a weakening economic outlook.

Bank of Canada Governor Tiff Macklem made the announcement during a news conference in Ottawa, emphasizing that the journey back to the Bank’s two percent inflation target might not be smooth. The governor noted that while inflation is gradually approaching the target, the central bank must carefully balance the risk of both underestimating and overestimating economic and inflationary weaknesses.

“The overall weakness in the economy is pulling inflation down. At the same time, price pressures in shelter and some other services are holding inflation up,” Macklem explained. He highlighted the complex dynamics at play, which may influence the speed at which inflation returns to the target rate.

Macklem also stated that if inflation continues to align with the Bank’s forecasts, further rate cuts could be anticipated. However, he stressed that each monetary policy decision would be made based on the prevailing economic conditions at the time.

This rate cut follows last month’s reduction, which was the first in four years and a significant shift in the Bank of Canada’s approach to managing high inflation. High borrowing costs had been curtailing spending by consumers and businesses, easing inflationary pressures.

Canada’s annual inflation rate decreased to 2.7% in June, after a temporary rise in May. The Bank of Canada’s latest monetary policy report projects that inflation will reach the two percent target next year. The report also forecasts that the Canadian economy, currently weak relative to population growth, will strengthen in the latter half of 2024. Real GDP growth is expected to average 1.2% this year and rise to 2.1% in 2025.

The Bank of Canada’s next interest rate decision is scheduled for September 4.