Yesterday the Bank of Canada (BoC) released its latest monetary policy statement.  Press releases from the Bank of Canada usually focus on interest rate policy, but this release also included plans for the Bank’s balance sheet (bond holdings) and an updated on the health of the Canadian financial system.

The overnight rate decreased by .25% to a range of 4.75 to 5.00%.  This range is the Operating Band. It’s lower end is what is commonly referred to as the Target for the overnight rate, which coincides with the Deposit rate, and the upper limit is referred to as the Bank rate.  See the below diagram.

The Bank will also continue its policy of balance sheet normalization by reducing its bond holdings.

The interest rate reduction on June 5th was the first change since July 2023, when the rate was increased by .25%.  The overnight rate began it’s rise in March 2022 and appears to have peaked at 5%.

According to the press release, “CPI inflation eased further in April, to 2.7%. The Bank’s preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum.” It was also stated, “With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points. Recent data has increased our confidence that inflation will continue to move towards the 2% target.”

Borrowing rates for consumers and businesses should also be adjust lower, as they are guided by policy rates set by Canada’s central bank. 

A concern stated in the release and at the press conference was that rate reductions could jeopardize the recent success seen in lowering consumer prices. However, with the natural rate of interest being seen somewhere around 3%, monetary policy is still restrictive and there is room for further rate cuts. The next Bank interest rate announcement will be on July 24th

This provides a positive boost to the outlook for the Canadian market, with lower borrowing costs releasing some of the strain on company balance sheets moving forward, along with signs that the economy is finding a stable footing. 

Read more here:

Bank of Canada press release             CBC News and BoC

Arif Kanji, CFP, CLU
Arif Kanji, CFP, CLU

Managing Director of Qopia Financial / Investment Advisor of Aligned Capital Partners Inc.

Since 2012, I have been helping Canadian families with their financial planning needs, with solutions ranging from personal and corporate life insurance and living benefits to estate preservation tools. As a registered investment advisor with Aligned Capital Partners Inc., I am able to provide investment strategies that are tailored to each individual’s needs. I have earned the distinguished Chartered Life Underwriter (CLU), Canada’s premier wealth transfer and estate planning designation as well as the Certified Financial Planner (CFP) designation which is the gold standard in the financial planning industry.