The BoC reduced its target for the overnight rate by 25 basis points (bps) to 4.75% on June 5, as it continues its policy of balance sheet normalization.
The BoC’s rate cut is as expected because core inflation is decelerating and growth remains tepid, says CIBC Capital Markets Opens in a new window.. There just wasn't a good enough reason to hold interest rates today. The BoC pointed to continued evidence that core inflation is easing which means the policy no longer needs to be as restrictive as it once was. Policymakers are confident inflation is coming back down to the target rate of 2%.
The global economy grew by approximately 3% in the first quarter of this year — broadly in line with the BoC’s April Monetary Policy Report projection Opens in a new window.. After stalling in the last half of 2023, economic growth in Canada resumed in Q1 2024. Consumption growth was solid at approximately 3%, business investment and housing activity also increased, and businesses continued to hire. Overall, recent data suggests the economy is still operating in excess supply.
CPI inflation continues to ease and came in at 2.7% in April. The BoC is closely watching the evolution of core inflation and remains focused on the balance between demand and supply in the economy. The BoC is committed to restoring price stability for Canadians.
Giuseppe Pietrantonio, Associate, Client Portfolio Manager, Multi-Asset and Currency at CIBC Asset Management says, “Slowing underlying inflation momentum in Canada over the past few months, as well as a weaker growth environment, support the rate cut decision today. The Canadian bond market reacted positively to this announcement, as the Canada 10-year government bond yield declined to 3.41%. Equity markets also reacted positively.”
The BoC stated it’s likely reasonable for Canadians to expect further rate cuts if inflation continues to ease. However, because risks to the inflation outlook remain, rate decisions will be taken one meeting at a time. The next BoC meeting and rate decision is scheduled for July 24, 2024.
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