Bank of Canada cuts interest rate for second time

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The decrease in discretionary spending is being driven mainly by households allocating a large amount of their income towards servicing their debt and a slowdown in demand for motor vehicles and travel abroad, according to the bank’s Monetary Policy Report. The bank expects GDP to grow by 1.5 per cent in the second half of this year; however, the Canadian population is expected to grow by three per cent, which puts GDP per-capita in negative territory. “Economic growth in Canada has picked up but remains weak relative to population growth,” said Bank of Canada Governor Tiff Macklem, in prepared remarks. “Household spending has been soft.” The central bank is forecasting growth at 2.1 per cent next year and 2.4 per cent in 2026. The headline inflation rate for June was 2.7 per cent and core inflation, the preferred measures the central bank looks at when making its policy decisions, have remained below three per cent for months, but still above the bank’s target of two per cent. “If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy rate,” said Macklem. “The timing will depend on how we see these opposing forces play out.” More to come …