Amid a falling national inflation rate, the Bank of Canada has delivered a so-called super-sized interest rate reduction.
The Bank on Wednesday cut its key overnight lending rate by 50 basis points to 3.75%. The largest reduction since the Covid-19 pandemic, today’s chop follows on the heels of three consecutive 25-point rate reductions since June and comes as headline inflation has largely now been tamed.
Statistics Canada’s consumer price index last week showed the overall inflation rate up 1.6% on a year-over-year basis in September, down from a 2% gain in August and a slower increase than expected by economists and analysts. It marked the smallest yearly increase in the inflation rate since February 2021 when it came in at 1.1%.
“With inflation now back around the 2% target, (the Bank) decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range,” the Bank said in its rate announcement. It added it expects to cut its policy rate further, provided the Canadian economy performs as expected.
“We will take decisions one meeting at a time. The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.”
The Bank is forecasting Canadian economic growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026.
The Bank’s next rate announcement is scheduled for Dec. 11, with some economists and analysts already speculating it could cut its overnight rate by another 50 basis points.
