In the statement accompanying the decision, the Bank noted that growth in the Canadian economy has picked up but is still below long-run potential, meaning the economy has growing excess supply.  The Bank points out that weakness in the economy is being felt both in household consumption and the housing market, and the labour market is softening. While growth is expected to increase in the second half of 2024 and in 2025, current levels of excess supply will continue to put downward pressure on inflation. As such, core inflation is expected to slow to 2.5 per cent in the second half of this year and ease further in 2025 while total CPI inflation settles near its 2 per cent target in 2025.

“We are increasingly confident that the ingredients to bring inflation back to target are in place. Looking ahead, we expect inflation to moderate further, though progress over the next year will likely be uneven,” said Bank of Canada Governor Tiff Macklem. “If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate. The timing will depend on how we see these opposing forces place out.”