The Bank of Canada has lowered its key interest rate by 25 basis points to 4.25 per cent.
It’s the third cut since June, and the first time the central bank has posted three consecutive reductions since the global financial crisis in 2009. Governor Tiff Macklem says if the economy continues to improve, Canadians can expect more rate cuts later this year. The next rate update is scheduled for Oct. 23.
In remarks to reporters, Macklem said the Canadian economy grew by 2.1 per cent in the second quarter of this year. The gain, led by government spending and business investment, was slightly higher than the central bank’s July forecast.
“That a healthy rebound from the near-zero growth we had in the second half of 2023,” said Macklem.
The bank’s July forecast is predicting even growth in the second half of this year and inflation is expected to ease, according to Macklem.
“We are determined to get inflation down to the two per cent target, and we want it to stay there,” said Macklem. “The economy functions well when inflation is around two per cent.”
Canada’s employment rate remains a concern for the central bank with the unemployment rate rising to 6.4 per cent in June and staying there in July. According to Macklem, the uptick was mainly seen amongst youth and newcomers to Canada.
“Business layoffs remain moderate, but hiring has been weak,” said Macklem. He also noted that slack in the labour market is expected to slow wage growth.
According to the Bank of Canada, the global economy expanded by about 2.25 per cent in the second quarter of 2024. Economic growth was stronger than expected in the United States led by consumption, however the American labour market has slowed.
It’s widely expected the bank will lower the overnight target rate again at its scheduled meeting in late October.
More details to come.