In July, Statistics Canada released data showing that annual inflation had slowed to 2.5 per cent, the lowest levels seen since March 2021. This information, coupled with other economic indicators, has led many economists to believe that the Bank of Canada will implement its third consecutive interest rate cut in September. The central bank uses its policy rate to control borrowing costs and manage inflation, and it is expected that rate cuts will continue for the rest of 2024, potentially bringing the benchmark policy rate below four per cent by the end of the year.
Forecasts for the pace at which the Bank of Canada will lower its policy rate have accelerated, with predictions that interest rates will continue to decrease steadily. While the central bank originally indicated a more gradual approach to rate cuts, recent changes in economic conditions have prompted a reassessment of this strategy. The Bank of Canada continues to monitor data closely and adjust its policy rate based on the information available to avoid reigniting inflation while supporting economic growth.
Concerns about inflation dropping below two per cent have shifted to worries about the labor market and overall economic growth. The recent rise in the unemployment rate and job losses in various sectors have led the Bank of Canada to express concern about the potential impact on consumption and growth. Economists suggest that the central bank has room for further rate cuts to stimulate the economy and support recovery, with predictions that interest rates will reach two to 2.5 per cent by the end of 2024.
While the outlook for interest rate cuts remains favorable, experts do not expect the Bank of Canada to implement large reductions in the near future. Instead, incremental 25-basis-point cuts are more likely, as the economy shows signs of stabilization but still requires support. Wage growth, housing market trends, and other factors need to be carefully considered to prevent the risk of sparking new inflationary pressures. The central bank is expected to continue monitoring economic data and making adjustments to its policy rate gradually.
Overall, the Bank of Canada is navigating a delicate balance between stimulating economic growth and managing inflation. While recent indicators point to the need for further rate cuts, the central bank is proceeding cautiously to avoid unintended consequences. The expectation is for interest rates to reach four per cent by the end of 2024, with potential additional cuts in 2025 depending on economic conditions and inflationary pressures. The central bank continues to adapt its strategies based on evolving economic data and trends to support a stable and sustainable recovery.
