The Bank of Canada Cuts Rates for the First Time Since March 2020

  • The Bank of Canada cut its target for the overnight rate to 4.75 per cent, the Bank rate to 5 per cent, and the deposit rate to 4.75 per cent. This is in line with the prediction from our latest national forecast.
  • The global economy grew by 3.0 per cent in the first quarter of 2024. The United States economy had slower than expected growth from weakness in exports and inventories while the euro area and China both had stronger economies in the first quarter.
  • At 1.7 per cent (annualized), growth in Canada was weaker in the first quarter than anticipated by the Bank, due to weaker inventory investment. Meanwhile, household consumption grew around 3.0 per cent.
  • Despite businesses continuing to hire, labour market data suggests the economy is still in excess supply with employment growing at a slower pace than the working-age population and wage growth easing.
  • The Bank is continuing with its quantitative tightening. As of this announcement, the Bank’s Government of Canada bond holdings are sitting around $239 billion.
  • CPI inflation eased to 2.7 per cent in April. The Bank’s preferred measures of core inflation slowed, and three-month measures indicate downward momentum. Shelter price inflation remains an issue.
  • The Governing Council of the Bank of Canada is committed to restoring price stability but agreed that monetary policy no longer needs to be as restrictive. Recent data has increased the Bank’s confidence that inflation will continue moving towards its 2 per cent goal. The central bank is vigil of the evolution of core inflation and continues to focus on the balance of supply and demand, inflation expectations, wage growth, and corporate pricing behaviour.


Labor market conditions are still favourable for rate cuts, despite April’s employment surprise. April’s employment increase (+90,000) was the largest employment gain in the last 12 months and came above predictions. However, the rosy job numbers were tamped down from a large increase in Canada’s population (over 100,000). As gains in supply were roughly matched by demand, zero change was seen in the unemployment rate. An unemployment rate at its highest level since January 2022, combined with cooling wage growth, are a positive development for further interest rate cuts.

High inflation for fuel and rent are keeping inflation expectations high. Although consumers’ expected price growth of essentials has eased, their short-term expectations remain high. In the Bank’s most recent survey of consumer expectations, respondents identified food prices, followed by rent and fuel costs, as the top factors influencing their perceptions of future inflation. While the most recent CPI numbers from April showed growth in food prices falling within a desirable range (2.3 per cent year-over-year), rented accommodation increased 7.9 per cent and gasoline costs rose 6.1 per cent over the same period. Gasoline prices have also showed strong monthly gains, up 7.9 per cent from March, largely due to a changeover in blends. Increases in these essential categories are likely keeping perceptions on inflation elevated.

Housing affordability will remain a challenge as rates fall. Given the high cost of shelter, housing affordability has been at the top of mind for many Canadians. In addition to rentals, recent data from Statistics Canada showed a 25.4 per cent increase in mortgage interest costs in March compared to a year earlier. Average home purchase prices have also remained high despite some pullback in 2023. As interest rates fall and new measures to address affordability are introduced, housing supply will pick up, but only modestly. In our view, the path to better affordability is still quite rocky.

For a better understanding of Canada’s economic outlook please visit our 5-year Canadian outlooks.