The Bank of Canada lowered its key interest rate to 4.75%, with the Bank Rate at 5% and the deposit rate at 4.75%, while continuing to normalize its balance sheet.
Globally, the economy grew by about 3% in Q1 2024, in line with the Bank’s earlier forecasts. The U.S. economy grew slower than expected due to weak exports and inventories, while the euro area and China saw stronger growth. Inflation is easing in many advanced economies but at different rates.
In Canada, the economy grew by 1.7% in Q1 2024 after stagnating late last year, though this was below forecasts. Solid consumer spending, increased business investment, and housing activity contributed to this growth. Employment is increasing, but at a slower pace than the working-age population, and wage pressures are gradually easing.
Inflation in Canada decreased to 2.7% in April, with core inflation measures also dropping. While price increases across various sectors have slowed, shelter costs remain high. Due to these positive inflation trends, the Bank decided to lower the policy interest rate by 25 basis points. They are confident that inflation will continue to move towards the 2% target but remain cautious and are closely monitoring economic conditions to ensure price stability.
The recent 25-basis-point cut in the Bank of Canada’s key lending rate is expected to stimulate Canada’s housing market. Many rate-sensitive homebuyers, who had postponed their plans due to high rates, may now return to the market. A Royal LePage survey found that 51% of Canadians who paused their homebuying plans over the last two years would resume their search following a rate cut. Specifically, 10% of respondents are motivated by the 25-basis-point drop, 18% would return with a cut of 50 to 100 basis points, and 23% would need a reduction of over 100 basis points. Phil Soper, president and CEO of Royal LePage, anticipates that this rate cut will reignite buyer activity and increase home prices in the latter half of the year.
The Bank of Canada will make its next announcement on Wednesday, July 24th.
Read the full June 5th report here & Royal LePage post here.