- The Bank of Canada lowered its benchmark interest rate by 50 basis points at its Wednesday policy meeting
- This move comes as futures markets increasingly bet on a more substantial rate cut after a notable decline in the country’s inflation rate
- In September, Canada’s annual inflation rate fell to 1.6 per cent, dipping below the Bank of Canada’s 2 per cent target
- The overnight rate has been brought down to 3¾ per cent, with the bank rate at 4 per cent and the deposit rate at 3¾ per cent
At its Wednesday policy meeting, the Bank of Canada lowered its benchmark interest rate by 50 basis points. The overnight rate has been brought down to 3¾ per cent, with the bank rate at 4 per cent and the deposit rate at 3¾ per cent.
This move comes as futures markets increasingly bet on a more substantial rate cut after a notable decline in the country’s inflation rate.
In an update, the bank stated that it maintains its expectation that the global economy will grow at approximately 3 per cent over the next two years. Economic growth in the United States is now anticipated to be stronger than earlier forecasts, while the outlook for China remains muted. European growth is said to have been weak, but is projected to recover modestly next year. Inflation in advanced economies has decreased in recent months and is now close to central bank targets.
In September, Canada’s annual inflation rate fell to 1.6 per cent, dipping below the Bank of Canada’s 2 per cent target. This has fuelled expectations of a larger rate reduction, as the central bank aims to stimulate economic growth amid signs of a slowing economy.
The Bank of Canada this year had implemented three rate cuts before Wednesday, each by 25 basis points, totalling a 75-basis point reduction. With inflation appearing to be under control and economic growth decelerating, economists and market participants had been preparing for a more aggressive 50 basis point cut.
Bank of Canada Governor Tiff Macklem had indicated that the central bank was ready to lower rates more aggressively if inflation continues to decline. He emphasized the need for accelerated economic growth across the country.
The Canadian economy expanded by approximately 2 percent in the first half of the year, and Macklem said the central anticipated growth of 1.75 percent in the second half. Gross domestic product (GDP) growth is expected to gradually strengthen over the projection period, aided by lower interest rates.
The bank projects GDP growth of 1.2 per cent in 2024, 2.1 per cent in 2025, and 2.3 per cent in 2026. As the economy strengthens, excess supply will be gradually absorbed.
Despite overall economic growth, Canada’s GDP has contracted on a per-capita basis for five consecutive quarters, highlighting underlying economic challenges.
The rate cut aims to provide further support to the economy, ensuring that inflation remains within the target range while fostering conditions for stronger economic growth.
The next scheduled date for announcing the overnight rate target is Dec. 11.
