Central bank lowers overnight rate for second month in a row
The Bank of Canada has cut interest rates for a second consecutive month, bringing its benchmark rate lower as it bids to keep inflation in check while avoiding a recession.
The central bank said this morning that it had lowered the target for its overnight rate by a further 25 basis points, cutting to 4.50% amid general signs that inflation is moderating and the labour market is slowing.
In its statement, the Bank said inflationary pressures were easing thanks to continuing excess supply, although rent and mortgage interest costs, as well as other services, were weighing against that trend.
The move will come as welcome news to variable-rate mortgage holders and borrowers with home equity lines of credit (HELOCs), with rates for those product types set to dip in line with the rate cut.
Having held that trendsetting interest rate at its highest level for more than two decades between July of last year and this June, the Bank has entered a cutting cycle in an effort to engineer a so-called “soft landing”, bringing inflation to its target without crashing the economy.
The overall consumer price index (CPI) had a greater-than-expected drop to 2.7% in June, marking the sixth consecutive month that overall inflation fell within the Bank’s target range of 1% to 3%.
While core measures of inflation remained somewhat stickier, the central bank also signalled in its latest survey of consumers and businesses earlier this month that inflation expectations were likely to continue trending downwards in the months ahead.
Meanwhile, a second labour market contraction in four months arrived in June, with the economy slashing 1,400 jobs in a jobs report that Royal Bank of Canada (RBC) assistant chief economist Nathan Janzen indicated “increase[d] the odds” of a July rate cut.
The Bank of Canada is scheduled to meet for its next rate decision on September 4 – and speculation on the prospect of further cuts before the end of 2024 is likely to intensify in the weeks ahead.
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