As inflation slows to 1.6%, the Bank of Canada signals further rate cuts amid easing economic pressure
The Bank of Canada announced a significant interest rate cut on Wednesday, marking a major step in its battle against inflation.
As reported by BNN Bloomberg, the central bank lowered its policy rate by half a percentage point, bringing it down to 3.75 percent. This is the fourth consecutive cut since June.
Governor Tiff Macklem stated that with inflation now around two percent, the Bank's focus has shifted from reducing inflation to maintaining it at the target level.
“We took a bigger step today because inflation is now back to the two percent target and we want to keep it close to the target,” he said.
Macklem emphasized the relief this brings for Canadians, noting that high inflation and interest rates have been burdensome. With inflation at target and interest rates declining, families, businesses, and communities are expected to feel some relief.
Canada’s inflation rate dropped to 1.6 percent in September, reinforcing expectations for a larger rate cut. Bigger cuts, as mentioned by CIBC chief economist Avery Shenfeld, allow the Bank to lower rates more swiftly.
Shenfeld stated that the Bank of Canada has “planted the victory flag” in achieving its inflation target.
Macklem hinted at further rate cuts, provided the economy evolves as forecasted, but avoided predicting another half-point reduction in December. He clarified that decisions will depend on evolving data, acknowledging the unpredictability of future economic conditions.
BMO chief economist Douglas Porter believes the Bank will likely return to smaller quarter-percentage-point cuts moving forward. He noted that the Bank does not appear to be in a rush to implement another large cut.
However, CIBC still anticipates a half-point cut in December, as current interest rates continue to restrict economic growth.
The Bank attributed the reduction in inflation to factors such as easing shelter price inflation, an oversupply in the economy, and declining global oil prices. It forecasts that inflation will remain near the two percent target through 2026.
High interest rates have slowed the Canadian economy and affected the labour market, with businesses reducing hiring. This has disproportionately impacted young people and newcomers.
However, as interest rates continue to decline, the Bank of Canada expects economic growth to accelerate in 2025 and 2026.
The next interest rate announcement is set for December 11.
