Bank of Canada announces reduction in policy rate by 25 basis points
Date
7/25/2024 4:49:15 AM
(MENAFN) On Wednesday, the bank of Canada announced a reduction in its policy rate by 25 basis points, bringing it down to 4.5 percent. This decision marks the second time in over four years that the central bank has cut its rate. The target for the overnight rate is now set at 4.5 percent, with the bank rate at 4.75 percent and the deposit rate also at 4.5 percent. This move follows the initial rate cut of 25 basis points in March 2020, which was implemented in response to the economic challenges posed by the coronavirus pandemic.
In its statement, the Bank of Canada projected that the global Economy would continue to grow at an annual rate of approximately 3 percent through 2026. Although inflation remains above the central bank’s targets in most advanced economies, it is expected to gradually ease over time. The bank noted that Canada’s economic growth has likely accelerated to around 1.5 percent in the first half of 2024. However, given robust population growth of about 3 percent, the economy’s potential output is growing faster than GDP, resulting in increased excess supply.
Looking ahead, the Bank of Canada forecasts a rise in GDP growth during the second half of 2024 and through 2025. The bank estimates GDP growth to be 1.2 percent in 2024, 2.1 percent in 2025, and 2.4 percent in 2026. It anticipates that the strengthening economy will gradually absorb excess supply throughout 2025 and into 2026.
The central bank also reported that consumer inflation, or the Consumer Price Index (CPI), moderated to 2.7 percent in June after a rise in May, with broad inflationary pressures easing. Core inflation measures have remained below 3 percent for several months and are expected to slow to around 2.5 percent in the latter half of this year, continuing to ease into the next year. The bank foresees CPI inflation dipping below core inflation in the second half of this year, primarily due to base-year effects on gasoline prices. However, as these effects diminish, CPI inflation may rise slightly before settling around the 2 percent target next year.
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