Here’s Why Canadians Should Keep an Eye on the Bank of Canada’s Next Move!

Experts predict that the Bank of Canada is poised to reduce interest rates this Wednesday. This anticipated move would mean a quarter-point cut to the key policy rate, bringing it down to 4.25 percent. If this adjustment takes place, it will mark the third consecutive rate cut by the central bank.

Despite economic growth outperforming expectations in the second quarter, with Statistics Canada reporting a 2.1 percent annualized growth rate, per-capita real gross domestic product (GDP) has continued to decline for the fifth consecutive time. Economists regard GDP per capita as a crucial indicator for assessing the actual standard of living in a country.

Towards the end of the second quarter, overall economic growth showed signs of stagnation, as real gross domestic product remained nearly unchanged in June. A preliminary estimate for July also suggested that the economy remained stagnant during that month.

CIBC senior economist Andrew Grantham noted that while Canadian economic growth in Q2 was slightly better than expected, the weak momentum entering the third quarter provides a solid rationale for the Bank of Canada to persist in reducing interest rates.

Governor Tiff Macklem previously stated that the interest rate cuts were intended to support the economy’s recovery. He also implied that further cuts may be necessary if inflation continues to decelerate and the economy struggles.

Despite the economy avoiding recession due to high interest rates, growth still lags behind the rapid population increase. Recent GDP data indicated that second-quarter growth was mainly fueled by government spending rather than a well-rounded surge in economic activity.

While the job market has shown signs of slowing down, wages continue to rise, with a 5.2 percent increase recorded in July on an annual basis. Simultaneously, inflation has significantly slowed down, standing at 2.5% in that month.

Ultimately, the continued interest rate cuts are crucial for bolstering the Canadian economy amid ongoing challenges and uncertainties. It remains to be seen how these actions will impact economic growth and inflation levels in the coming months.