OTTAWA—The Bank of Canada cut its key interest rate for the fourth time in 2024, bringing it down to 3.75 percent.
“We took a bigger step today because inflation is now back to the 2 percent target and we want to keep it close to the target,” Bank of Canada Governor Tiff Macklem said on Oct. 23.
“Now our focus is to maintain low, stable inflation. We need to stick the landing.”
The Bank said the Consumer Price Index has fallen “significantly” from 2.7 percent in June to 1.6 percent in September, which was below its inflation goal of 2 percent. It is expected that inflation numbers for October will be at 2 percent.
According to Macklem, household spending and business investment have picked up in 2024 but still remain “soft,” which has allowed inflation to continue easing. While housing inflation has remained elevated, falling global oil prices and excess supply in the economy in other areas have combined to bring inflation down.
The Canadian economy grew around 2 percent in the first half of 2024 and 1.75 percent in the second half, with consumption growing overall but declining on a per-person basis. The Bank said it predicts GDP growth will end at 1.2 percent in 2024, while growing by 2.1 percent in 2025 and 2.3 percent in 2026.
Macklem said the Bank’s decision to cut rates by half a percentage point is expected to encourage further economic growth while keeping inflation steady. He said if the economy “evolves broadly in line with this forecast,” interest rates are expected to fall further.
“High inflation and interest rates have been a heavy burden for Canadians. With inflation now back to target and interest rates continuing to come down, families, businesses, and communities should feel some relief,” Macklem said.
Monetary Policy Report
The Bank of Canada also released its Monetary Policy Report, which said Canada’s economic activity is “evolving largely as expected.” Growth in the second quarter of 2024 was half of a percent higher than projected, and government spending and business investment were also stronger than expected.Canada’s unemployment rate rose from 5 percent at the beginning of 2023 to 6.5 percent in September 2024, which was due to an increasing number of immigrants and young people joining the labour force without a job. While newcomers and young Canadians make up around one quarter of the labour force, they account for three quarters of the increase in the unemployment rate since the start of 2023.
The report said Canada’s GDP growth continues to reflect “still-strong population gains” due to immigration, while per-person GDP has declined because of higher interest rates and a softer labour market. The bank said its projection for GDP “depends heavily” on the assumed path of population growth, with the federal government recently announcing several measures to reduce the number of new non-permanent residents.
The report said overall GDP is expected to strengthen throughout 2024, while per-person GDP will begin rising in the first quarter of 2025. Population growth is projected to decline from 2.5 percent in the second half of 2024 to an average quarterly growth of 1.5 percent.
Global GDP growth slowed to 2.75 percent in mid-2024 but will likely strengthen to 3 percent by the end of the year, with growth being stronger in the United States and weaker in China. The U.S. has shown stronger productivity growth and easier financial conditions than the Bank of Canada had projected, while the Chinese economy has shown increasing weakness in domestic demand and property prices.
The Bank of Canada said its economic outlook is dependent on whether there is increased geopolitical uncertainty, noting that conflicts in the Middle East and Ukraine, increasing trade tensions, and the outcome of the U.S. election will impact this. It said all three could result in inflation rising by more than projected, as they could raise oil and commodity prices and lead to higher tariffs and disrupt trade.
