The Bank of Canada (BoC) lowered its benchmark interest rate on Wednesday, citing that inflation pressures are "no longer broad-based" and that business and consumer inflation expectations have "largely normalized."
Canada central bank cuts rates by 50 basis points
The 50 basis point reduction brings the overnight rate down to 3.75% from 4.25%. This marks the central bank's fourth consecutive rate cut, in line with market expectations, as reported by FXStreet consensus.
The BoC's last rate hike was in July 2023, after which it maintained the policy interest rate at 5.00% for six consecutive meetings.
"With inflation now close to the 2% target, the Governing Council decided to cut the policy rate by 50 basis points to support economic growth and keep inflation within the 1% to 3% range. If the economy performs as expected, we anticipate further rate cuts. However, the timing and pace of these reductions will depend on incoming data and its impact on the inflation outlook. Decisions will be made on a meeting-by-meeting basis," the BoC stated.
The Bank projects GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026.
Data from October showed that consumer price inflation in Canada slowed in September, with the consumer price index rising by 1.6% year-on-year, down from 2.0% in August.
The BoC also noted that "inflation in shelter costs remains elevated but is beginning to ease. Excess supply in other sectors of the economy has reduced inflation for many goods and services, while falling global oil prices have lowered gasoline costs. These factors have collectively helped to bring inflation down. The Bank's preferred measures of core inflation are now below 2.50%."
