The Bank of Canada lowered its benchmark interest rate for a third consecutive time, reducing its trend-setting policy rate to 4.25% on Wednesday (Sept. 4).
The central bank explained that it made the decision because the Canadian economy increased by 2.1% in the second quarter, a stronger growth than the institution had projected. Additionally, Canada’s annual inflation rate fell to 2.5% in July from 2.7% in the previous month, matching market expectations, to mark the softest increase in consumer prices since March of 2021.
“Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up. Governing Council is carefully assessing these opposing forces on inflation. Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook. The Bank remains resolute in its commitment to restoring price stability for Canadians,” the central bank said.
The institution expects inflation to fall to 2% by the second half of 2025. Economists are predicting the Canadian central bank a will continue cutting its interest rate for the remainder of the year and into 2025, with the rate falling between 2.25 and 3.25 per cent by the end of next year.
The latest rate cut comes amid expectations that the US Federal Reserve will lower borrowing costs for the first time in four years at its Sept. 17-18 policy meeting.
Canada in June became the first G7 nation to loosen monetary policy in the current cycle. The European Central Bank followed suit, becoming the second major western economy to do so.
But as Spanish economist and fund manager Dr. Daniel Lacalle said recently wrote on Tomorrow’s Affairs “when “inflation decreases,” prices do not go down; the rate of increase slows down. The constant rise in prices is solely due to the erosion of the currency’s purchasing power.”
