BOC: Resumed interest rate cuts in September after four meetings

■ The Bank of Canada (BOC) will resume interest rate cuts after four meetings, driven by weakening employment and slowing overall inflation.  

■ While inflationary pressures continue, uncertainty around US tariffs has increased concerns about the economic outlook. 
 
 
    On September 5th, Statistics Canada released August employment data showing that the unemployment rate increased by 0.2 percentage points to 7.1%, reaching its highest level since May 2016 (excluding the COVID-19 pandemic). Employment declined by 65,500, mostly in part-time positions, and the labor force participation rate fell to 65.1%. Although year-over-year hourly wage growth accelerated to 3.6%, businesses are believed to be slowing hiring and taking a cautious stance due to US tariff uncertainty. The Consumer Price Index (CPI) for August will be released on the 16th. In July, the CPI increased by 1.7% year-over-year. Lower gasoline prices, driven by factors such as the April repeal of the consumer carbon tax and the Middle East ceasefire, contributed to this slowdown. Meanwhile, the median core CPI, a key measure for the Bank of Canada (BOC), rose 3.1% year-over-year. The revised core CPI increased 3.0% year-over-year, remaining near the upper limit of the Bank of Canada's 1-3% target range, indicating ongoing inflationary pressures. 
 
    At its last meeting on July 30th, the Bank of Canada (BOC) kept its policy rate steady, citing "remaining uncertainty about US tariffs and the difficulty of predicting US policy," "the current Canadian economy remains resilient," and "while inflation is gradually approaching the Bank of Canada's target, underlying inflationary pressures remain." The bank also stated that if inflationary pressures stay contained, it might cut rates further if the Canadian economy weakens. Meeting minutes indicated some policymakers believed that after lowering the policy rate to the middle of the neutral range (estimated at 2.25-3.25%), the BOC had essentially done all it could to support the economy. Real GDP declined by an annualized 1.6% in Q2 2024 (April-June). While personal consumption continued to grow, equipment investment and net exports declined, hindering economic growth. Due to a cooling labor market, the Bank of Canada (BOC) is expected to resume rate cuts on the 17th, lowering the policy rate from 2.75% to 2.50%.