Press Conference on Interest Rate Announcement by the Bank of Canada

Introduction

• Speaker: Paul Boder, Director of Media Relations
• Presenters: Governor Mam, Senior Deputy Governor Carolyn Rogers

Key Announcements

• Monetary Policy Adjustment: Policy rate lowered by 25 basis points to 4.75%.
• Inflation Confidence: Increased confidence that inflation will move closer to the 2% target.
• Economic Growth: Resumed economic growth observed.
• Labor Market: Employment is growing, slower than the working-age population.
• Core Inflation: Measures have decreased, indicating sustained easing.

Economic and Inflation Details

• Growth Dynamics:
  • First-quarter economic growth: 1.7%.
  • Consumption growth: ~3%
  • Increase in business investment and housing activity.
• Labor Market:
  • Employment growth, albeit at a slower pace.
  • Elevated wage pressures moderating gradually.
• Inflation Metrics:
  • CPI inflation: Declined from 3.4% in December to 2.7% in April.
  • Core inflation: Eased from ~3.5% in December to ~2.75% in April.
  • Three-month core: Slowed from ~3.5% to under 2.
  • Broad-based price pressures easing.

Policy Implications

• Interest Rate Projections:
  • Potential for future policy rate cuts if conditions align.
  • Taking decisions one meeting at a time.
  • Risks remain, including global tensions, rising house prices, high wage growth relative to productivity.
• Monitoring:
  • Continued focus on core inflation, supply-demand balance, and inflation expectations.
  • Watching how inflation evolves closely.

Q&A Session Highlights

• Rate Cuts:
  • Gradual approach emphasized, decisions one meeting at a time.
  • Further cuts are reasonable if inflation pressures continue to ease.
• Investment Impact:
  • High interest rates are an uncertainty factor for business investment.
  • Relief in inflation will help businesses invest more confidently.
• Housing Market:
  • Some pent-up demand observed; housing related price inflation remains a concern.
  • Interest rates impact both renters and mortgage holders.
• Population Growth:
  • Slowing down expected; relevant measures incorporated into forecasts.
  • Has both demand and supply effects on the economy.
• Implications of Divergence from US Fed Policy:
  • Canadian economy requires decisions tailored to its specific needs despite global trends.
  • Historical divergence exists with room still available.
• Long-term Interest Rates:
  • Interest rates may not go back to pre-COVID lows.
  • Households and businesses should be prepared for a higher rate environment compared to pre-COVID.

Conclusions

• Final Remarks:
  • Importance of flexibility and responsiveness to new data emphasized.
  • Commitment to bringing inflation back to the 2% target remains the primary goal.
  • Continued responses to questions via press conference highlighting areas of growth, investment, housing, and rate policy.