What is the Bank of Canada’s key rate of interest?
The central bank justified its decision to chop the important thing rate of interest by 1 / 4 of a percentage point by citing easing price pressures and weakening economic conditions. Its key rate of interest is currently 4.5%.
Inflation and the BoC
In his prepared statement, Governor Tiff Macklem noted that as inflation approaches goal, the central bank also desires to avoid the danger that the economy and inflation slow greater than expected. But he said the trail back to 2 percent inflation is unlikely to be a straight one.
“The general weakness of the economy is pushing inflation down. At the same time, price pressures on housing and some other services are keeping inflation high,” Macklem said.
While the governor said the Bank of Canada is “increasingly confident” that inflation is returning to its goal level, the forwards and backwards of those opposing forces could affect the pace at which price growth slows.
“If inflation broadly continues to decline in line with our forecast, it is reasonable to expect further cuts in our policy rate. The timing will depend on how we think these opposing forces play out,” he said. “In other words, we will make our monetary policy decisions one at a time.”
Where are rates of interest heading?
The Bank of Canada made its first rate of interest cut in 4 years last month, marking a serious turning point within the fight against high inflation. High borrowing costs have led to a drop in spending by consumers and businesses, which economists say has helped ease pressure on price growth. Canada’s annual inflation rate fell back to 2.7% in June after temporarily rising sharply in May.
The Bank of Canada’s monetary policy report released on Wednesday includes latest forecasts suggesting inflation will return to the two% goal next 12 months.
The Canadian economy, which the central bank says stays weak relative to population growth, is predicted to get well within the second half of 2024. Real gross domestic product is predicted to grow by a median of 1.2 percent this 12 months, followed by 2.1 percent in 2025.
