[News] Bank of Canada Slashes Rates by 50 Basis Points to Boost Economic Growth and Maintain Inflation Stability

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The Bank of Canada announced a 50 basis point rate cut to 3.75% on October 23, in line with market expectations, marking the largest rate reduction since the onset of the COVID-19 pandemic in March 2020.

Bank of Canada Governor Tiff Macklem stated that price pressures are no longer broad-based, and the central bank’s focus is now on maintaining stability. While consumer and business investment spending has picked up, overall economic activity remains weak. Though this may help ease price pressures, with inflation now within the target range, the bank is keen to see stronger economic growth moving forward.

Tiff  Macklem further noted that if the economy performs as expected, the Bank of Canada will continue to lower rates to keep inflation on target and support demand. However, the timing and pace of future rate cuts will depend on incomming information, and adjustments will be made incrementally.

Looking ahead, the central bank forecasts that economic growth will gradually recover to around 2% by 2025, with further growth to approximately 2.5% in 2026. This is primarily driven by stronger consumer and business investment in a lower interest rate environment. The Bank of Canada also expects residential investment to rebound as housing demand increases, while exports should rise on the back of robust U.S. demand.

On inflation, the central bank anticipates some fluctuations in the coming months but expects it to remain within the target range as upward pressures on housing and service prices ease. However, if consumer and business spending grows more slowly than expected, inflation may still face some downside risks.

(Source: Bank of Canada, TrendForce)