Well, friends, the Bank of Canada has just announced something that might have a ripple effect on all our lives—a decision to lower its key interest rate by half a percentage point, bringing it down to 3.75%. Now, while that number might seem a little abstract, it’s part of a broader plan that the Bank has to balance the country’s economic growth and keep inflation in check.
What does that mean for us? The Bank is keeping an eye on the global economy, and they’re seeing a mixed bag. The U.S. is doing better than expected, China’s growth has slowed down, and Europe is struggling a bit, though it’s expected to recover next year. Inflation, which has been a big topic lately, has been coming down around the world and is now sitting near the targets set by central banks. Even oil prices have dropped by about $10 compared to earlier this year, which is good news for those of us watching gas prices at the pump.
Here in Canada, we’ve seen steady but modest growth—about 2% in the first half of the year, with a slight dip expected in the second half. While we’re all feeling the pinch a bit, especially with per-person consumption on the decline, there’s some positive news too. The opening of the Trans Mountain pipeline has boosted our exports, and the housing market is still seeing strong demand, which could lead to more investment in homes and renovations.
The labour market, though, is still a bit soft, with an unemployment rate of 6.5%. This is especially tough on young people and newcomers. Wages are rising, but they aren’t quite keeping pace with productivity growth. That’s something to keep in mind as we look at where the economy is heading.
But here’s the good news: the Bank expects things to pick up gradually over the next few years. They’re forecasting growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026. As the economy strengthens, we’ll start to see some of that excess supply being absorbed, which should help balance things out. And with interest rates coming down, it’s likely we’ll see a boost in consumer spending, housing investments, and business growth.
On the inflation front, we’ve seen a big drop—from 2.7% in June to 1.6% in September. Shelter costs are still higher than we’d like, but even those are beginning to ease. Lower oil prices have brought down the cost of gas, and overall, inflation is settling down. The Bank’s preferred measures of core inflation are now sitting comfortably below 2.5%, which is a good sign.
The Bank expects inflation to stay close to its 2% target over the coming years. They’re confident that the upward pressures, like housing costs, will ease, while the downward pressures from excess supply will gradually fade as the economy strengthens.
So, in response to all this, the Bank of Canada has decided to lower the policy rate by 50 basis points. They’re hoping this will give the economy the support it needs to grow while keeping inflation in check. If everything goes as planned, we might see further rate cuts down the road. But the Bank is going to take it one step at a time, carefully watching how the economy evolves.
At the end of the day, it’s all about balance—helping the economy grow while making sure prices stay steady. And that’s a goal we can all get behind.