As expected, the Bank of Canada (BOC) lowered borrowing costs by 0.25% while keeping its balance sheet plans unchanged.
In their official statement, BOC policymakers highlighted the impact of excess supply on inflationary pressures, as well as signs of slack in the labor market. They also predicted that their preferred measures of core inflation are likely to slow during the second half of this year until next year.
Link to official BOC July monetary policy statement
The accompanying quarterly Monetary Policy Report also included downgrades to their growth forecasts for 2024, with the full-year GDP estimate slashed from 1.5% in their April Monetary Policy Report to 1.2% this time. Officials project that the economy could expand 2.1% next year, down from their earlier 2.2% forecast.
As for inflation, they left their 2024 forecast unchanged at 2.6% while revising its 2025 estimate slightly higher from 2.2% to 2.4%.
Link to BOC July quarterly Monetary Policy Report
During the press conference, Governor Tiff Macklem highlighted how “downside risks are taking on increased weight in our monetary policy deliberations.”
Furthermore, he explained that they need to boost growth in order for hiring to pick up and “absorb excess supply and bring inflation sustainably back to target.”
In response to press questions, Macklem also mentioned that “If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate.”
Link to BOC Governor Macklem’s press conference
Market Reactions
Canadian Dollar vs. Major Currencies: 5-min
Overlay of EUR vs. Major Currencies Chart by TradingView
The Loonie had been treading carefully against majority of its peers (except against the Japanese yen) early in the day, before cruising mostly lower roughly an hour ahead of the BOC announcement.
The actual decision led to a small move higher for the Canadian currency, as traders digested the changes in their official statement and Monetary Policy Report while also holding out for the press conference.
While CAD/JPY had another dip following the presser, it pulled gradually higher against majority of its counterparts for the remainder of the trading session, even paring its post-BOC losses versus the Greenback and Aussie.