This morning, the Bank of Canada announced a decrease in its key interest rate by 0.25%. The prime rate has decreased from 6.70% to 6.45%. Therefore, for those who have a variable rate credit product, payments will decrease by $15.34 per month for every $100,000.00 of mortgage.
Globally, the economy grew by about 2.5% in the second quarter, which matches what the Bank expected in its July Monetary Policy Report (MPR). In the U.S., economic growth was stronger than anticipated, mainly driven by consumer spending, although the job market has slowed down. Inflation is easing in both the U.S. and Europe. Since July, global financial conditions have improved, leading to lower bond yields. The Canadian dollar has risen slightly, mostly due to a weaker U.S. dollar. Oil prices are lower than what was expected in July.
In Canada, the economy grew by 2.1% in the second quarter, driven by government spending and business investment. This growth was a bit stronger than the Bank had predicted in July, but early signs suggest that economic activity slowed down in June and July. The job market continues to weaken, with little change in employment recently. However, wage growth is still high compared to productivity.
As expected, inflation slowed to 2.5% in July. The Bank’s preferred measures of core inflation averaged around 2.5%, and the percentage of consumer price index (CPI) components growing above 3% is now back to its usual level. High shelter costs are still the biggest contributor to overall inflation but are beginning to slow. Inflation remains high in some other services. Given the continued reduction in broad inflationary pressures, the Bank decided to cut the interest rate by another 0.25%. The excess supply in the economy is helping to lower inflation, while rising prices in shelter and other services are keeping it up. The Bank’s Governing Council is closely watching these conflicting factors affecting inflation. Future monetary policy decisions will be based on new data and their impact on the inflation outlook. The Bank is committed to bringing price stability back for Canadians.
The next Bank of Canada announcement will be on October 23, 2024.
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