On Wednesday, June 5th,2024 the Bank of Canada (BoC) released its latest monetary policy. The headlines usually focus on the central bank’s policy interest rate, the overnight rate, but it also includes plans for the Bank’s balance sheet (bond holdings) and health of the Canadian financial system.
The overnight rate was decreased by ¼% (25 basis points) to a range of 4.75 to 5.00%. This range, the operating band, has its lower end at the overnight rate, which coincides with the deposit rate and the upper limit is referred to as the bank rate.
The Bank is continuing its policy of balance sheet normalization.
The interest rate reduction on June 5th was the first change since July 2023, when the rate was last increased by 25 basis points. The overnight rate began its rise in March 2022 and appears to have peaked at 5% until it was adjusted downward.
According to the press release, “CPI inflation eased further in April, to 2.7%. The Bank’s preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum.” It also included, “With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points.”
Borrowing rates for consumers and businesses are guided by policy rates set by Canada’s central bank. Adjustments, albeit small, are expected as the Bank of Canada lowers rates over time.
A concern stated in the release and at the press conference that rate reductions could jeopardize the recent success lowering consumer prices has fueled speculation for the Bank of Canada’s next interest rate announcement on July 24th.
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