Bank of Canada’s Overnight Rate Slashed 50 Basis Points to 3.75% – Currency Thoughts
Bank of Canada’s Overnight Rate Slashed 50 Basis Points to 3.75%
October 23, 2024
The overnight interest rate, which had been held at a peak 5.0% from July 2023 until this past June, was cut today by the Bank of Canada’s Governing Council by 50 basis basis points. This doubled the ante of 25 basis points used for previous reductions in June, July and September and brings the rate level to 3.75%, its lowest since December 2022. Still, such is a full percentage point above what officials estimate would be a neutral rate. Further reductions will be made if macroeconomic trends evolve as expected, but the timing and precise path to be taken will be determined by decisions made on a meeting to meeting basis.
Officials utilize a 1-3% target range for Canadian CPI inflation, and actual inflation fell significantly further than expected from August’s 2.0% to 1.6% in September and thus below the its range midpoint.
The Canadian economy is currently experiencing excess aggregate product supply and a softer labor market. These imbalances are expected to recede only gradually, and real GDP is projected to expand only 1.2% this year before accelerating to 2.1% in 2025 and 2.3% in 2025. Core consumer price inflation is forecast to settle further from 2.3% now to 2.1% a year later and 2.0% in the final quarter of 2026. That’s the baseline scenario by an updated quarterly Monetary Policy Report released today warns of upside inflation risks from “a broadening conflict in the Middle East that could affect Iran’s oil production,” a possible escalating war in Ukraine that “impact the global supply of key commodities,” and “disruptions of trade flows and additional tariffs.”
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Canada
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