Bank of Canada Keeps Rates Steady, But Rate Cuts Might Be on the Horizon
In recent news, the Bank of Canada (BoC) has decided to keep the overnight interest rate the same for the sixth time in a row. This didn't really shock anyone. But there's a buzz of optimism because the BoC thinks inflation, which is how fast prices for things you buy go up, is slowly getting back to their target of 2%.
Let's dive a bit deeper into what's going on. Early in 2024, the economy did a bit better than expected, making the BoC think that things might be looking up. However, even with more people moving to Canada, when you break down the growth per person, it's actually gone down for the seventh time in a row. So, the economy isn't growing as fast as we hoped, staying a bit behind.
The BoC also noticed that not as many jobs are being created, and more people are looking for work. This is a sign that the economy isn't as strong as it could be. Plus, they've seen signs that the fast rise in how much people get paid is starting to slow down.
Interestingly, the cost of living hasn't gone up as fast as the BoC thought it would early this year. Their main way of tracking inflation, which doesn't count the really unpredictable prices, is still higher than they want it to be. But, they've seen some signs that the speed at which prices are going up is starting to slow down a bit.
Looking ahead, things like not enough growth in the economy and more people looking for work could mean that prices won't go up as fast. The BoC's boss, Governor Macklem, said they're starting to see the kind of trends in inflation they need to think about lowering interest rates. They just want to make sure these trends keep up and aren't just a one-time thing.
The BoC also tweaked their guess for what they think the normal interest rate should be, making it a tiny bit lower. But, Governor Macklem was quick to say that this guess doesn't really affect their decisions right now.
So, what's the bottom line? The BoC is being careful, not wanting to say they've beaten high prices too soon. But, because our economy isn't doing as well as other places, like the U.S., and prices haven't been rising as fast lately, they're thinking more about lowering interest rates. Governor Macklem didn't say for sure that they'll lower rates at their next meeting in June, but he didn't rule it out either. With a couple more reports on prices and jobs coming before their next big decision, many are guessing we might see a small drop in interest rates then.
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