Monetary Policy Report—July 2024

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Monetary policy is working to reduce price pressures in the Canadian economy. Core inflation is expected to ease gradually, while the path of CPI inflation will be bumpy.

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Bank of Canada reduces policy rate by 25 basis points to 4½%

The Bank of Canada today reduced its target for the overnight rate to 4½%, with the Bank Rate at 4¾% and the deposit rate at 4½%. The Bank is continuing its policy of balance sheet normalization.

Overview

Consumer price index (CPI) inflation in Canada is moving closer to the 2% target.

Inflation is no longer broad-based, and measures of core inflation have eased significantly. However, some pressures remain, particularly in prices for services.

Progress back to target is expected to be uneven.

See details in the Projections section.

Canadian economy

Economic growth in Canada has picked up but is weak relative to population growth. Consumer spending per person has been declining, and residential investment has been subdued. Strong population growth has added to the supply of workers, and the labour market has cooled significantly.

The ongoing excess supply in the economy is expected to pull inflation down. Other indicators also point to lower inflation going forward. Inflation expectations have generally fallen, and businesses have gone back to their normal ways of setting prices.

Wage growth, however, remains elevated. Inflation in the services most affected by wages is proving persistent. And rent and mortgage interest costs are keeping inflation in shelter prices high.

Find out more in the Current conditions section.

Outlook

Canada’s economy is expected to strengthen in the second half of 2024 and into 2025. Growth in exports is anticipated to pick up. Household spending should strengthen as borrowing costs come down.

Population growth is projected to slow because of new limits on arrivals of temporary residents.

Core inflation is expected to ease to about 2.5% in the second half of 2024 and then continue its gradual decline. CPI inflation is forecast to temporarily fall below core inflation, mostly due to gasoline prices. It is then projected to rise modestly into the first half of 2025 before returning sustainably to 2% later that year.

Take a closer look in the Outlook section.

Global economy

The global economy is expected to grow at around 3% over the projection horizon.

In the United States, economic growth has slowed after a period of surprising strength. Past increases in interest rates are weighing on consumers, and government spending has moderated. The euro area economy, meanwhile, is expanding after stalling in 2023.

Inflation remains above central bank targets in the United States and the euro area. It is expected to gradually ease.

Learn more in the Global economy section.

Risks

There are both upside and downside risks to the Bank’s inflation outlook. Overall, the Bank considers the risks to be balanced.

The main upside risks:

• services price inflation could be more persistent than expected
• global geopolitical tensions and conflicts could worsen

The main downside risks:

• household spending could be weaker than projected
• global economic activity could slow more than expected

See details in the Risks section.

This is a sample web-based version of the Monetary Policy Report prepared by Bank staff using content from the July 2024 document.

In brief: Monetary Policy Report

Learn about Canada's inflation-control strategy, the objective of Canada’s monetary policy and the main instruments used to implement it.

Bank of Canada reduces policy rate by 25 basis points to 4½%

The Bank of Canada today reduced its target for the overnight rate to 4½%, with the Bank Rate at 4¾% and the deposit rate at 4½%. The Bank is continuing its policy of balance sheet normalization. Content Type(s): Press, Press releases

Monetary Policy Decision Press Conference Opening Statement

Governor Tiff Macklem discusses key issues involved in the Governing Council’s deliberations about the policy rate decision. Content Type(s): Opening statements, Press, Speeches and appearances

Press Conference: Monetary Policy Report – July 2024

Release of the Monetary Policy Report – Press conference by Governor Tiff Macklem and Carolyn Rogers, Senior Deputy Governor (10:30 (ET) approx.).

Content Type(s): Press, Speeches and appearances, Webcasts