The Bank of Canada reduced its key interest rate to 3.75%, with the Bank Rate dropping to 4% and the deposit rate to 3.75%.
The Bank of Canada’s Governing Council decided to reduce its policy rate by 50 basis points in response to inflation now returning to near the 2% target to help aid economic growth and maintain inflation within the 1% to 3% range.
Consumer Price Index inflation saw a significant drop from 2.7% in June to 1.6% last month.
“We took a bigger step today because inflation is now back to the 2 per cent target and we want to keep it close to the target,” Governor of the Bank of Canada Tiff Macklem said in a statement.
Macklem indicated that the central bank’s focus is now “to maintain low, stable inflation.”
The central bank said it expects the global economy to expand at a rate of about 3% over the next two years.
“Growth in the United States is now expected to be stronger than previously forecast while the outlook for China remains subdued. Growth in the euro area has been soft but should recover modestly next year,” wrote the Bank of Canada in a statement released on Wednesday.
According to the central bank, Canada’s economy grew at around 2% in the first half of this year and it expects further growth of 1.75% in the second half.
While the interest cut is good news for many Canadians, the labour market remains weak, with the unemployment rate at 6.5% last month.
“Population growth has continued to expand the labour force while hiring has been modest. This has particularly affected young people and newcomers to Canada. Wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply,” the central bank said.
The central bank forecasts an overall GDP growth of 1.2% this year and 2.1% in 2025, followed by an uptick of 2.3% in 2026..
The prices of many goods and services have started to drop in price as a result of excess supply elsewhere in the economy. However, , shelter costs remain elevated.
The Bank of Canada said that if the pressure of shelter and other services continue on their path of gradual decline, it expects “to reduce the policy rate further.”
The next scheduled date for announcing the overnight rate target is December 11, 2024 and the central bank will publish its next full outlook for the economy and inflation on January 29, 2025.