Bank of Canada lowers rates to 4.75% from 5.0%. Full statement from the Bank of Canada

The Bank of Canada cut rates to 4.75% from 5.0% at its June 2024 interest-rate decision.

The full statement from the Bank of Canada:

FOR IMMEDIATE RELEASE

June 5, 2024

The Bank of Canada today reduced its target for the overnight rate to 4¾%, with the Bank Rate at 5% and the deposit rate at 4¾%. The Bank is continuing its policy of balance sheet normalization.

The global economy grew by about 3% in the first quarter of 2024, broadly in line with the Bank’s April Monetary Policy Report (MPR) projection. In the United States, the economy expanded more slowly than was expected, as weakness in exports and inventories weighed on activity. Growth in private domestic demand remained strong but eased. In the euro area, activity picked up in the first quarter of 2024. China’s economy was also stronger in the first quarter, buoyed by exports and industrial production, although domestic demand remained weak. Inflation in most advanced economies continues to ease, although progress towards price stability is bumpy and is proceeding at different speeds across regions. Oil prices have averaged close to the MPR assumptions, and financial conditions are little changed since April.

In Canada, economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7%, first-quarter GDP growth was slower than forecast in the MPR. Weaker inventory investment dampened activity. Consumption growth was solid at about 3%, and business investment and housing activity also increased. Labour market data show businesses continue to hire, although employment has been growing at a slower pace than the working-age population. Wage pressures remain but look to be moderating gradually. Overall, recent data suggest the economy is still operating in excess supply.

CPI inflation eased further in April, to 2.7%. The Bank’s preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum. Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average. However, shelter price inflation remains high.

With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points. Recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain. Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.

Bank of Canada’s Macklem says:

• We are taking our rate decisions one meeting at a time
• Reasonable to expect more rate cuts if inflation continues to ease
• Further progress in bringing down inflation is likely to be uneven and risks remain
• Our confidence that inflation will continue to move closer to the 2% target has increased over recent months
• Total CPI has declined consistently over the course of 2024 and indicators of underlying inflation increasingly point to a sustained easing
• Inflation could be higher if global tensions escalate. If Canada house prices rise faster than expected or wage growth remains high relative to productivity
• Although Q1 growth was weaker than Bank had forecast in April, consumption growth was solid while business investment and housing activity also increased
• With economy in excess supply, there is room for growth even as inflation continues to recede

Macklem will speak at 10:30 AM ET.

The USDCAD moved to the upside after the rate cut. The price is above 1.3700 and looks toward the swing area between 1.3714 and 1.3728. A downward sloping trendline connecting recent highs cuts across within that area.

This article was written by Greg Michalowski at www.forexlive.com.