The Bank of
Canada (BoC) lowered its benchmark interest rate by 50 basis points to 3.75 per
cent on Wednesday, as widely expected. This represented the fifth straight decrease in the BoC’s key interest rate, which brought it
down to the top end of the range the Canadian central bank sees as neutral (2.25-3.25%).
In its policy
statement, the Canadian central bank noted:
- Global financial
conditions have eased;
- CAD has
depreciated in the face of broad-based strength in USD;
- Canada’s
economy grew by 1% in Q3, somewhat below the BoC’s October projection, and Q4
also looks weaker than projected;
- Consumer
spending and housing activity both picked up, suggesting lower interest rates
are beginning to boost household spending;
- Wage growth
showed some signs of easing, but remains elevated relative to productivity;
- A number of
policy measures have been announced that will affect the outlook for near-term
growth and inflation in Canada, including reductions in targeted immigration
levels, temporary suspension of the GST on some consumer products, one-time
payments to individuals, and changes to mortgage rules;
- BoC will look
through effects that are temporary and focus on underlying trends to guide its
policy decisions;
- Possibility the incoming US administration will impose new
tariffs on Canadian exports to the United States has increased uncertainty and
clouded the economic outlook;
- CPI inflation
is expected to average close to the 2% target over the next couple of years;
- Governing Council decided to reduce the policy rate by a
further 50 basis points to support growth and keep inflation close to the
middle of the 1-3% target range;
- Going forward, BoC will be evaluating the need for further
reductions in the policy rate one decision at a time;
- BoC decisions will
be guided by incoming information and our assessment of the implications for
the inflation outlook;
- BoC is
committed to maintaining price stability for Canadians by keeping inflation
close to the 2% target