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Canada Monetary Policy June 2024

Canada: Bank of Canada decreases rates in June

At its meeting on 5 June, the Bank of Canada (BOC) reduced its target for the overnight rate to 4.75% from 5.00%.

The Central Bank’s decision was primarily driven by easing headline and core inflation so far this year, with headline inflation now within the Bank’s 1.0%–3.0% target range. Moreover, the Bank judged that inflation would continue to move towards the central 2.0% target going forward. As such, the BOC had space to make its monetary stance less restrictive.

The Central Bank’s governor hinted at more rate cuts going forward, which is in line with our panelists’ projections of further rate cuts later in 2024 as inflation should continue to trend down.

Scotiabank’s Derek Holt said:

“The Governor’s sudden rush [to cut rates]  has us revising our call in favour of another cut in July and 100bps of easing this year from 75bps previously. We think they will wish to deliver this 100bps in a straight line fashion until the October meeting. At this point we’re nervous toward the December meeting that follows the US election and have penciled in a pause for that one while nevertheless bringing forward our forecast for a 3.25% policy rate by one quarter to be achieved by 2025Q3.”

Goldman Sachs analysts are slightly more hawkish:

“The overall message from [the Bank’s] statement and press conference was more dovish than we expected. While we continue to forecast cuts in September and December (for an additional 50bp of easing in 2024), we see a July cut as a clear possibility if upcoming inflation prints are in line with the recent trend.”

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