The Bank of
Canada (BoC) lowered its benchmark interest rate by 50 basis points to 3.75 per
cent on Wednesday, as widely anticipated. This represented the fourth straight reduction in the BoC’s key interest rate.
In its policy
statement, the Canadian central bank noted:
- Canada’s
economy grew at around 2% in H1 and is expected to expand by 1.75% in H2;
- Labour market
remains soft;
- Wage growth
remains elevated relative to productivity growth;
- Overall, the
economy continues to be in excess supply;
- GDP growth is
forecast to strengthen gradually over the projection horizon, supported by
lower interest rates;
- BoC sees GDP
growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026;
- CPI inflation
has declined significantly from 2.7% in June to 1.6% in September;
- Inflation in
shelter costs remains elevated but has begun to ease;
- With
inflationary pressures no longer broad-based, business and consumer inflation
expectations have largely normalized;
- BoC expects
inflation to remain close to the target over the projection horizon, with the
upward and downward pressures on inflation roughly balancing out;
- Governing
Council decided to reduce its rate by 50 basis points to support economic
growth and keep inflation close to the middle of the 1% to 3% range;
- If the economy evolves broadly in line with BoC’s latest
forecast, it expects to reduce rate further;
- Timing and
pace of further reductions will be guided by incoming information and
assessment of its implications for the inflation outlook;
- BoC will take
decisions one meeting at a time