Bank of Canada cuts rate once again, now at 4.25%

The Bank of Canada has once again cut its key interest rate.

It’s now down to 4.25 per cent, having been cut to 4.5 per cent in July and 4.75 per cent in June.

The cut was widely predicted.

The rate, however, is still relatively high, coming as it does after years of near-zero rates in Canada and across much of the Western world.

"Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up," the Bank of Canada said in a statement released this morning.

It added: "Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook. The Bank remains resolute in its commitment to restoring price stability for Canadians."

The interest rate was rapidly increased to 5 per cent last year as inflation rocketed in Canada during the COVID-19 crisis.

According to Statistics Canada’s most recent inflation data, prices were 2.5 per cent higher in July 2024 compared with July 2023.

That’s the lowest yearly inflation rate in over three years, boosting confidence that the economy is returning to a more stable footing.

It’s not only inflation that worries policymakers, however, as both jobs and growth have become causes for concern.

The unemployment rate in Canada was 6.4 per cent in July, a 0.9-percentage-point increase compared with last year.

StatCan also said the private sector lost 42,000 jobs in July, while the public sector gained 41,000.

There were 205,000 more public sector jobs in July 2024 compared with July 2023, according to the agency.

Growth, meanwhile, has not been strong, with GDP per capita – a rough measure of living standards – declining for five quarters in a row.

GDP on the whole, which has been boosted by enormous levels of migration, grew 0.5 per cent in the second quarter of this year.

That growth, however, hasn’t been enough to accommodate all the new arrivals to the country, with RBC plainly stating last week that “rapid population growth” was the cause of the decline in GDP per person.