The Bank of Canada has lowered its key interest rate to 3.75 per cent, making a 50-basis-point cut for the first time since the COVID-19 pandemic.
Before Wednesday, the rate stood at 4.25 per cent. Economists were expecting the central bank to go with a larger than usual cut, compared to the 25-basis-point downgrades made in June, July and September.
The last time the bank made a cut this size was on March 27, 2020.
As concerns over inflation have subsided — out-of-control price growth, the catalyst for the central bank’s initial rate-hike campaign, is now back within the target range — the bank has focused on cutting to keep inflation stable and support economic growth, which has been sluggish under the pressure of high rates.
“We need to stick the landing,” Bank of Canada governor Tiff Macklem told a news conference Wednesday morning.
“With inflation back to two per cent, we want to see growth strengthen. Today’s interest rate decision should contribute to a pickup in demand.”
Bank of Canada Governor Tiff Macklem, who on Wednesday cut the key interest rate to 3.75 per cent, says inflation has come down ‘significantly’ in recent months.
Macklem outlined the economic conditions that informed the bank’s rate cut decision. He noted that core inflation is within the bank’s target. Housing inflation, which has been driving headline inflation up for much of the year, is gradually easing, though prices are still elevated. And global oil prices have fallen.
He noted that the economy is seeing an excess of supply of goods and services. Canadians are still cutting back on discretionary spending as inflation and high interest rates have pummelled their purchasing power in the last few years.
“Job layoffs have remained modest but business hiring has been weak, which has particularly affected young people and newcomers to Canada. Simply put, the number of workers has increased faster than the number of jobs,” he said.
Earl Davis, head of fixed income and money markets at BMO, speaks with CBC business reporter Scott Peterson to break down the latest Bank of Canada news and explain what it might mean in the months ahead.
Macklem noted that, should the economy continue to evolve broadly in line with the bank’s forecast, further cuts to the policy rate can be expected. But he cautioned that the timing and pace of cuts would depend on incoming economic data and its potential impact on the bank’s inflation outlook.
He repeated a now-familiar refrain, saying that the Bank of Canada will take decisions one meeting at a time.
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