Bank of Canada cuts key rate by 50 basis points in oversized step
The Bank of Canada delivered an oversized interest rate cut of half a percentage point on Wednesday, focusing now on boosting the Canadian economy amid signs inflation is well under control.
The central bank’s policy rate now stands at 3.75 per cent. Wednesday’s decision is the fourth consecutive drop in interest rates since June and is the Bank of Canada’s largest rate cut since the global financial crisis in 2009, outside the COVID-19 pandemic.
“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,” Bank of Canada governor Tiff Macklem told reporters Wednesday.
Since the previous interest rate cut in September, inflation has not only returned to the Bank of Canada’s two per cent target but even dropped below it to 1.6 per cent in the most recent reading.
The Bank of Canada’s revised outlook has inflation holding around the two per cent mark in the foreseeable future, allowing for some fluctuations within the target range of one to three per cent.
But with inflation largely tamed the central bank’s focus is shifting to cracks that have formed in the Canadian labour market and the broader economy. The unemployment rate remains elevated at 6.5 per cent and growth in the third quarter has significantly undershot the central bank’s previous estimates.
The Bank of Canada is hoping that cuts to the policy rate will encourage growth, making it easier for Canadians and businesses to spend and boost the economy.
Macklem said that if the economy continues to evolve broadly in line with the central bank’s expectations, more interest rate cuts can be expected to boost demand and keep inflation on target. But he pushed back on reporters’ efforts to get more
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