September 04, 2024 at 02:45PM
Bank of Canada overnight rate was 4.50% before the decision
Markets were pricing in a 76% chance of a 25 bps cut and 24% chance of 50 bps
In the United States, economic growth was stronger than expected, led by consumption, but the labour market has slowed.
Inflation in US and European regions continues to moderate
Preliminary indicators suggest that economic activity was soft through June and July
The labour market continues to slow
Wage growth remains elevated relative to productivity
High shelter price inflation is still the biggest contributor to total inflation but is starting to slow
Macklem will hold a press conference at 10:30 am ET, but the opening statement was released with the BOC statement
Key line:
Excess supply in the economy continues to
put downward pressure on inflation, while price increases in shelter and
some other services are holding inflation up. Governing Council is
carefully assessing these opposing forces on inflation.
USD/CAD was trading at 1.3546 ahead of the decision and is trading at 1.3542 shortly afterwards.
The opening statement from Macklem highlighted a meeting-by-meeting approach:
Headline and core inflation have continued to ease as expected
As inflation gets closer to target, we want
to see economic growth pick up to absorb the slack in the economy so
inflation returns sustainably to the 2% target
Overall weakness in the economy continues to
pull inflation down. But price pressures in shelter and some other
services are holding inflation up.
If inflation continues to ease broadly in
line with our July forecast, it is reasonable to expect further cuts in
our policy rate
We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time
Our July projection has growth strengthening
further in the second half of this year. Recent indicators suggest there
is some downside risk to this pickup
Business layoffs remain moderate, but hiring has been weak
With inflation getting closer to the target,
we need to increasingly guard against the risk that the economy is too
weak and inflation falls too much
Reading through the comments, the Bank of Canada sounds reluctant to look forward and forecast what’s coming next. Instead, they’re going to take decisions as the data comes in. This risks leaving them behind the curve.
This article was written by Adam Button at www.forexlive.com.
