In March 2022, Bank of Canada Governor Tiff Macklem said aggressive rate hikes were needed to quickly tamp down inflation, but that they’d only be temporary.
What happened: More than two years later, our guy has kept his promise. After becoming one of the first central banks to start cutting interest rates back in June, the BoC decided to bring down the key interest rate yesterday by another 25 basis points to 4.50%.
- The BoC expects core inflation, which leaves out more volatile prices like food and gas, to slow to 2.5% by the end of 2024 and finally reach the 2% target in 2025.
Why it matters: The BoC is only the second G10 central bank to cut rates twice this year (the other is the Swiss National Bank), which could be a sign that some worrying indicators are emerging in Canada’s economy, from declining GDP growth to rising unemployment.
- According to the bank, growth in the economy is needed so inflation doesn’t fall too much, but sticky price growth for shelter and service costs are complicating things.
What’s next: According to BMO economist Douglas Porter, a third rate cut is on the table in September if upcoming inflation readings don’t scare the central bankers. He projects two more rate cuts before the end of 2024, which would bring the key rate down to 4%.—SB