The Bank of Canada has lowered its overnight rate target to 4¼%, with the Bank Rate at 4½% and the deposit rate at 4¼%. This move is part of its ongoing effort to normalize its balance sheet.

Globally, the economy grew by about 2½% in the second quarter, in line with the Bank’s July report. The U.S. saw stronger-than-expected growth due to increased consumption, though the job market has slowed down. The Eurozone benefited from tourism and services, but manufacturing remains weak. Inflation in both regions is easing. China’s growth is hindered by weak domestic demand. Financial conditions worldwide have improved since July, with lower bond yields. The Canadian dollar has slightly strengthened, largely due to a weaker U.S. dollar, and oil prices are lower than previously expected.

In Canada, the economy grew by 2.1% in the second quarter, driven by government spending and business investment. This growth was a bit stronger than anticipated in July, but recent data suggest a slowdown in economic activity over the summer. The job market remains sluggish, with little change in employment numbers recently. However, wage growth is still high compared to productivity.

Inflation slowed to 2.5% in July. The Bank’s preferred core inflation measures are also around 2½%, and the proportion of consumer price index components growing above 3% is at its historical average. Shelter price inflation remains the biggest contributor to overall inflation but is beginning to decrease. Some other services are still seeing high inflation.

Given the ongoing decrease in broad inflationary pressures, the Governing Council decided to cut the policy interest rate by 0.25%. While excess supply in the economy continues to ease inflation, rising prices in shelter and some services are keeping inflation higher. The Governing Council is closely monitoring these factors and will base future policy decisions on new information and its impact on inflation. The Bank is committed to restoring price stability for Canadians.