Bank of Canada expected to cut key interest rate

Posted September 3, 2024 2:24 pm.

Economists say the Bank of Canada is on track to cut interest rates Wednesday.

It’s widely expected that the central bank will lower its key policy rate by a quarter of a percentage point to 4.25 per cent — which would mark its third consecutive rate cut.

That’s despite economic growth coming in stronger than the Bank of Canada expected in the second quarter.

Statistics Canada says the economy grew at an annualized rate of 2.1 per cent for that quarter. But real gross domestic product continued to shrink on a per-person basis, marking the fifth consecutive decline. Economists typically look at GDP per capita to assess the standard of living.

Overall economic growth also halted toward the end of the quarter as real gross domestic product was essentially unchanged for June. A preliminary estimate suggested the economy remained flat in July as well.

“Growth in the Canadian economy was modestly better than expected in Q2, but weak momentum heading into the third quarter gives ample reason for the BoC to continue cutting interest rates,” CIBC senior economist Andrew Grantham said in a client note.

Governor Tiff Macklem said at the last interest rate announcement that the central bank was cutting interest rates in part to help the economy bounce back.

If inflation continued to slow, he said it would be reasonable to expect the Bank of Canada to continue lowering its policy rate.

Although high interest rates have not pushed the economy into a recession, economic growth continues to lag behind strong population growth.

The latest GDP report also suggested that growth in the second quarter was largely driven by government spending, rather than a broad-based increase in activity.

Despite a slowdown in the job market, wages continue to climb, rising 5.2 per cent in July on an annual basis.

At the same time, inflation has slowed significantly, reaching 2.5 per cent that month.