Jumbo-sized Bank of Canada Policy RATE CUT of 50 Basis Points

Photo by REUTERS / Reuters

On Wednesday, the Bank of Canada slashed its benchmark interest rate by 50 basis points, bringing it to 3.75%. This marks the fourth consecutive cut since June, aimed at maintaining low inflation, which currently sits at 1.6%. The Bank of Canada Governor, Tiff Macklem, declared this a success in returning inflation to the 2% target. Macklem emphasized that, with inflation under control, the central bank could further reduce rates, depending on economic performance. Economists are now speculating on whether another rate cut could follow in December.

A Positive Shift for Canadians

Governor Macklem expressed optimism during his announcement, highlighting that inflation is no longer a significant concern for Canadians. He assured the public that the focus now is to maintain stable inflation. This means that Canadians, particularly those in the housing market, could see further relief, making mortgages and loans more affordable.

Potential Future Cuts

While the Bank of Canada is monitoring incoming data closely, economists suggest that the Bank may continue cutting rates at a more moderate pace. Desjardins economists foresee a 25 basis point cut in December and anticipate further gradual reductions through 2025. However, Macklem emphasized that the timing of these cuts will depend on how economic data unfolds in the coming months.

Economic Implications

Despite better-than-expected second-quarter growth, the Bank of Canada revised its third-quarter growth forecast downward, expecting the Canadian GDP to grow by 1.2% this year. Looking ahead, growth is expected to improve to 2.1% by 2025. This rate cut is part of the central bank’s strategy to boost economic activity and restore momentum after a period of higher interest rates slowed growth.

In conclusion, while inflation is under control and Canadians can breathe a sigh of relief, the Bank of Canada remains cautious about the pace of further cuts. The possibility of a continued reduction in borrowing costs could provide further economic stimulation, offering a positive outlook for homeowners, businesses, and consumers alike.