The Bank of Canada did as it was expected to last week and cut its trend-setting Policy Rate by 25 basis-points.  It now sits at 2.25%.

The central bank has shifted its economic focus away from inflation and is now keeping a closer watch over economic growth.  Inflation remains above the Bank’s target of 2.0%, but it is still within the operating range of 1.0% to 3.0%.

Canada’s Gross Domestic Product has stalled.  The economy shrank by 0.3% in August, offsetting a 0.3% gain in July.  The ongoing weakness follows a 1.6% contraction in the second quarter.  The unemployment rate stands at 7.1%.

The Bank is signalling that it has likely ended its rate cuts for this cycle.  Governor Tiff Macklem cautioned “that monetary (i.e., interest rate) policy cannot undo the damage caused by tariffs.”  While the central bank’s monetary policy can help the economy adjust to these circumstances, “it cannot restore the economy to its pre-tariff path,” he said.

In its Monetary Policy Report, released alongside the interest rate announcement, the Bank warned that the trade conflict with the U.S. is “fundamentally reshaping” Canada’s economy.

In the U.S. the central bank has also trimmed its benchmark interest rate by a quarter of a point.  The Federal Reserve rate now sits in a range between 3.75% and 4.0%.  U.S. inflation continues to run hotter than the 2.0%, but employment growth is slowing.

Going forward much of the Bank of Canada’s future decision making will be influenced by stimulus laid out in the federal budget.

Published by First National Financial LP