Bank of Canada July assessment: The enthusiasm for interest rate cuts highlighted
2024-07-26
■ The Bank of Canada (BOC) has decided to cut interest rates again based on June, against the backdrop of heightened vigilance over the risk of an economic downturn
■ Currently, BOC's attention to price trends has weakened, replaced by an increasing focus on the economy and labor market
The Bank of Canada (BOC) announced its board decision on July 24th. With the arrival of July, the financial market's expectation of BOC continuing to cut interest rates after June quickly heated up. As expected, the policy rate remained at 4.50%, achieving two consecutive meetings of interest rate cuts.
This council meeting highlights BOC's positive attitude towards interest rate cuts. The continuous interest rate cuts by BOC are a high alert to the downside risks of the Canadian economy. The Financial Policy Report (MPR) released this time shows that the GDP growth forecast 2024 has been lowered from 1.5% to 1.2%, and the forecast for 2025 has been lowered from 2.2% to 2.1%. Although the revision is minor, this is worth noting considering the "easing of borrowing costs" mentioned in the statement and MPR, which means that interest rate cuts may continue in the future. The current assessment of the Canadian economy in MPR is quite bleak, with statements such as weak economic growth compared to population growth, '' decreased per capita consumer spending, 'and' significant cooling of the labor market 'reflecting this. Indeed, the GDP for the first quarter of 2024, released at the end of May, increased by 1.7% year-on-year, far below the BOC's expected 2.8% and market expectations of 2.2%. In addition, the June unemployment rate released on July 5th was 6.4%, a new high in two years and five months, and the labor market's weakness has attracted attention.
After the board meeting, BOC President McClelland stated, "To prevent excessive inflation decline, it is necessary to accelerate economic growth" and "it is reasonable to expect further interest rate cuts." This indicates that BOC will actively consider supporting the Canadian economy through interest rate cuts. However, the policy of 'the timing of interest rate cuts depends on data' remains unchanged. Therefore, in the future, the policy stance of BOC may shift from focusing on price indicators to economic and labor market-related indicators such as real GDP and employment statistics. The next BOC Council meeting is scheduled for September 4th, but before that, the actual GDP from April to June will be announced on August 30th, which will be the most closely watched material. In addition, the monthly real GDP for May will be released on July 31st, and the employment statistics for July will be released on August 9th, which will also be on the upcoming schedule. On the other hand, as of the time of writing this article, short-term financial markets have already reflected the possibility of an additional interest rate cut this year. Suppose the Canadian economy fails to recover as expected by BOC. In that case, the market may expect a significant interest rate cut next year, impacting the Canadian dollar exchange rate and interest rate.
■ Currently, BOC's attention to price trends has weakened, replaced by an increasing focus on the economy and labor market
The Bank of Canada (BOC) announced its board decision on July 24th. With the arrival of July, the financial market's expectation of BOC continuing to cut interest rates after June quickly heated up. As expected, the policy rate remained at 4.50%, achieving two consecutive meetings of interest rate cuts.
This council meeting highlights BOC's positive attitude towards interest rate cuts. The continuous interest rate cuts by BOC are a high alert to the downside risks of the Canadian economy. The Financial Policy Report (MPR) released this time shows that the GDP growth forecast 2024 has been lowered from 1.5% to 1.2%, and the forecast for 2025 has been lowered from 2.2% to 2.1%. Although the revision is minor, this is worth noting considering the "easing of borrowing costs" mentioned in the statement and MPR, which means that interest rate cuts may continue in the future. The current assessment of the Canadian economy in MPR is quite bleak, with statements such as weak economic growth compared to population growth, '' decreased per capita consumer spending, 'and' significant cooling of the labor market 'reflecting this. Indeed, the GDP for the first quarter of 2024, released at the end of May, increased by 1.7% year-on-year, far below the BOC's expected 2.8% and market expectations of 2.2%. In addition, the June unemployment rate released on July 5th was 6.4%, a new high in two years and five months, and the labor market's weakness has attracted attention.
After the board meeting, BOC President McClelland stated, "To prevent excessive inflation decline, it is necessary to accelerate economic growth" and "it is reasonable to expect further interest rate cuts." This indicates that BOC will actively consider supporting the Canadian economy through interest rate cuts. However, the policy of 'the timing of interest rate cuts depends on data' remains unchanged. Therefore, in the future, the policy stance of BOC may shift from focusing on price indicators to economic and labor market-related indicators such as real GDP and employment statistics. The next BOC Council meeting is scheduled for September 4th, but before that, the actual GDP from April to June will be announced on August 30th, which will be the most closely watched material. In addition, the monthly real GDP for May will be released on July 31st, and the employment statistics for July will be released on August 9th, which will also be on the upcoming schedule. On the other hand, as of the time of writing this article, short-term financial markets have already reflected the possibility of an additional interest rate cut this year. Suppose the Canadian economy fails to recover as expected by BOC. In that case, the market may expect a significant interest rate cut next year, impacting the Canadian dollar exchange rate and interest rate.