The Bank of Canada announced a reduction in its target for the overnight rate to 4.75%, with the Bank Rate at 5% and the deposit rate at 4.75%, continuing its balance sheet normalization policy.
Global economic growth was around 3% in Q1 2024, aligning with the Bank’s April Monetary Policy Report. In the US, slower-than-expected growth was due to weak exports and inventories, while the euro area and China saw improved activity. Inflation in advanced economies is easing unevenly. Oil prices matched MPR assumptions, and financial conditions remained stable since April.
Canada’s economic growth resumed in Q1 2024 at 1.7%, slower than forecasted, with weaker inventory investment. Consumption, business investment, and housing activity increased, but wage pressures are moderating. CPI inflation eased to 2.7% in April, with core inflation also slowing. However, shelter price inflation remains high.
With evidence of easing inflation, the Governing Council reduced the policy interest rate by 25 basis points, confident that inflation will move towards the 2% target. Risks to the inflation outlook persist, with a focus on core inflation, demand-supply balance, wage growth, and corporate pricing behaviour. The Bank remains committed to restoring price stability for Canadians.
Canada is the first country of the G7 group to lower its interest rate in the last four years since the start of the COVID-19 pandemic. This move was highly requested for by multiple bodies, including Canadian unions.