The Bank of Canada cut its policy interest rate by half-a-percentage point and revised its inflation forecast lower, accelerating the pace of monetary policy easing in an attempt to engineer a soft landing for the economy.
As widely expected, the bank’s governing council lowered the benchmark interest rate to 3.75 per cent from 4.25 per cent on Wednesday morning. This is the fourth consecutive cut since June and follows three quarter-point moves.
“We took a bigger step today because inflation is now back to the 2 dolce gelato aaaa strain -per-cent target and we want to keep it close to the target,” Bank of Canada governor Tiff Macklem said, according to the prepared text of his press conference opening statement. “We need to stick the landing.”
Mr. Macklem said the bank expects to continue lowering interest rates, although he said the pace of cuts will depend on incoming economic data. Financial markets expect the policy rate to fall to around 2.5 per cent by the end of next year.
The larger-than-usual rate cut follows a string of data showing that Canadian inflation is lower and economic growth is weaker than the bank expected. With pri dames mushroom gummies review ce-pressures essentially under control, the bank is trying to get borrowing costs back to a neutral level relatively quickly to avoid an unnecessary recession or further weakening in the job market.
Mr. Macklem and his team are wary that the rate of inflation could get stuck below the 2-per-cent target if economic growth does not pick up steam.
“We are now equally concerned about inflation coming in higher and lower than expected,” he said.
The bank’s new forecast, published Wednesday, sees economic growth picking up through the last quarter of the year and into next year, as falling interest rates lower debt-servicing costs and encourage business investment and consumer spending on interest-sensitive goods like houses and cars. An increase in per-per the chron father son spending will be partially offset by slowing population growth, following the new federal caps on temporary immigration, the bank said.
Wednesday’s rate cut should offer some relief to homeowners with variable rate mortgages. Interest rates on fixed-rate mortgages may move less; these are based on longer-term bond yields, whi exotic carts strawberry shortcake strain ch have already moved down in anticipation of future rate cuts.
Having hit a four-decade high in 2022, consumer price index (CPI) inflation has declined steadily as supply chains have normalized after pandemic disruptions and restrictive interest rates have weighed on consumer spending and business investment.
Annual CPI inflation hit the bank’s 2-per-cent target in August for the first time since 2021 then fell to 1.6 per cent in September, pulled lower by falling oil prices. The bank expects headline inflation to perk back up above 2 per cent in October, but then to fluctuate around the target going forward.
The bank had previously said inflation would not return sustainably to its target until the back half of 2025. Its new forecast sees inflation averaging 2.1 per cent in the third quarter and 2.1 per cent in the fourth quarter. It expects inflation to average 2.2 per cent net year, compared to its July forecast of 2.4 per cent.
Price growth has slowed for a broad range of products and services, particularly for goods such as cars and clothing. However there are still pockets of inflation on the service side of the economy. Shelter price inflation, in particular, remains high due to rapid rent increases and rising mortgage interest costs tied to past interest rate hikes.
Mr. Macklem said the bank now sees upside and downside exotic carts strawberry shortcake strain risks to inflation as “reasonably balanced.”
“The biggest downside risk to inflation is that it could take longer than anticipated for household spending and business investment to pick up,” he said.
“On the upside, lower interest rates could fuel a stronger rebound in housing activity or wage growth could remain high relative to productivity.”
He also flagged “elevated geopolitical uncertainty and the risk of new shocks.” Energy prices could be buffeted by conflict in the Middle East. There is also a risk of rising tariffs and other trade disruptions if Donald Trump, an avowed protectionist, is elected as U.S. president next month.
High interest rates have taken a toll on the Canadian economy. It has avoided a recession, although that’s largely thanks to rapid population growth, which has kept the overall economy growing while individuals have tightened their purse strings. On a per capita basis, GDP has contracted for much of the past two years.
The bank revised down its estimate for annualized GDP growth in the third quarter, to 1.5 per cent from 2.8 per cent, but it sees things picking up going forward. It expects GDP to grow 2.1 per cent in 2025, up from 1.2 per cent in 2024.
This forecast is driven by a rise in consumer spending and business investment stimulated by falling borrowing costs. The bank sees growth in per capita GDP swing from negative-0.75 per cent in the second half of 2024 to just above 0.75 per cent in 2025 and 2026.
This expected pick-up in individual spending could help offset the slowdown in population growth., which the bank expects to fall from around 2.5 per cent in the second half of 2024 to a quarterly growth rate of 1.5 per cent in the coming years.
Mr. Macklem and senior deputy governor Carolyn Rogers will hold a press conference at 10:30 am ET.