The Bank of Canada has lowered interest rates by 50-basis points as evidence mounts that the economy is slowing and inflation falls below its 2% annualized target.
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Canada’s central bank reduced its trendsetting overnight interest rate to 3.75% from 4.25%. It was the fourth consecutive time this year that the Bank of Canada has cut interest rates. The bank has now taken interest rates down a total of 1.25% since June.
The latest rate cut comes after Canada’s annual inflation rate in September fell to 1.6%, which is below the Bank of Canada’s 2% annualized target. At the same time, data points to an economic slowdown across the country, with gross domestic product (GDP) shrinking on a per-capita basis for five consecutive quarters.
Reversing Course
After steadily raising interest rates in 2022 and 2023 to lower inflation that peaked at 8.1%, the Bank of Canada has aggressively reversed course. The central bank move ahead of the U.S. Federal Reserve in lowering interest rates and has stepped up its monetary policy easing with a 50-basis point cut following three previous cuts of 25-basis points each.
Bank of Canada Governor Tiff Macklem has said repeatedly that the central is prepared to lower interest rates further in coming months if inflation continues to decline. He has also said that ensuring economic growth reaccelerates is a top priority for the central bank.
“We took a bigger step today because inflation is now back to the two per cent target and we want to keep it close to the target,” said Governor Macklem in announcing the latest rate cut.
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