The Bank of Canada emphasized that the national economy is slowing in announcing its decision to lower its trendsetting overnight interest rate by a further 25-basis points to 4.50%.
For the second time in two months, Canada’s central bank reduced interest rates by a quarter of a percentage point as evidence points to both lower consumer prices and a slowing economy.
In announcing the latest rate cut, Bank of Canada Governor Tiff Macklem stressed that the Canadian economy’s growth is slowing and that unemployment is on the rise.
At a news conference in Ottawa, Macklem said that the central bank’s focus is shifting towards supporting the economy and away from elevated consumer prices.
That shift comes as inflation in Canada has declined from an annualized peak of 8.1% in June 2022 to 2.7% in June of this year.
Like most central banks, the Bank of Canada targets inflation at an annualized rate of 2%.
However, mounting economic data indicates a slowdown across the country. Canada’s economy grew at a tepid annualized rate of 1.7% in this year’s first quarter.
At the same time, the unemployment rate, currently at 6.4%, is above its pre-pandemic 2019 level.
The unemployment rate is above 10% for immigrants who have moved to Canada over the last five years.
Despite pivoting to focus on economic growth, Macklem continued to say that any future interest rate decisions by the Bank of Canada will be data dependant.
Still, some economists and traders are now forecasting that the Bank of Canada will continue to cut interest rates at each of its remaining three meetings this year.
Canada’s commercial banks are expected to follow the central bank’s lead and reduce their prime lending rates by a further 25-basis points today (July 25).
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