Bank of Canada Backs Recent Rate Cut with Strong Conviction Home Insights & NewsBank of Canada Backs Recent Rate Cut with Strong Conviction Insights & News Videos Subscribe Insights & News ...Videos Bank of Canada Backs Recent Rate Cut with Strong Conviction Published on: October 24, 2024 Category: InsightsNews Following three cuts of 25 basis points, the Bank of Canada (BoC) announced a fourth consecutive reduction of its policy rate, this time by 50 basis points to 3.75%. Markets widely anticipated a large cut as inflation has slowed more than expected. With annual price growth now hovering around 2%, the Central Bank stated that its decision was prompted by the economic conditions. In a press briefing, Governor Tiff Macklem said, “Today’s interest rate decision should contribute to a pickup in demand,” adding that the Bank would like to see growth strengthen. In Canada, growth forecasts remain stable at 1.2% for 2024. The Bank estimates that the output gap ranges between -0.75% and -1.75% in the third quarter, unchanged from its estimated level in the second quarter of 2024. The BoC’s press release following its October 23 decision highlighted several points: Canadian economy grew at around 2% in the first half of the year, and the BoC expects growth of 1.75% in the second half. The Bank’s preferred measures of core inflation are now below 2.5%. The labour market remains soft as the unemployment rate was at 6.5% in September. CPI inflation has declined significantly from 2.7% in June to 1.6% in September. Global oil prices are about $10 lower than assumed in the July Monetary Policy Report (MPR). In its Monetary Policy Report, the BoC forecasts that wage growth should moderate, which will ultimately contribute to lower inflation. However, some might interpret this projection as wishful thinking rather than an informed perspective. This assumption points to a slowdown in wage growth and a recovery in productivity, both of which help to reduce cost pressures. Given that higher than expected labour costs could lead to higher inflation, the Bank is therefore suggesting that wage growth will slow, and productivity growth will accelerate. Since the central bank has been projecting this scenario for more than a year, one might wonder why productivity growth would suddenly start to rise again at a sustained rate. Always in pursuit of added value addendacapital.com © Addenda Capital Inc., 2024, All rights reserved. This document may not be reproduced without Addenda Capital's written consent.