The Bank of Canada’s decision on Wednesday to cut the interest rate by 50 basis points, bringing it down to 3.75%, marks a rate reduction twice as large as the previous cuts.
The Bank of Canada has lowered its key interest rate to 3.75%, marking the first 50-basis-point cut since the onset of the COVID-19 pandemic. Previously set at 4.25%, the rate adjustment comes after a series of smaller, 25-basis-point cuts in June, July, and September. The last time the central bank made a cut of this size was on March 27, 2020, following two similar reductions earlier that month on March 4 and March 13.
As concerns over inflation have eased — with price growth, which initially prompted the central bank’s rate-hike campaign, now back within the target range — the Bank of Canada has shifted its focus to cutting rates to maintain stable inflation and bolster economic growth, which has been sluggish due to the strain of high borrowing costs.
“We need to stick the landing,” said Bank of Canada governor Tiff Macklem during a news conference on Wednesday.
“With inflation back to two percent, we want to see growth strengthen. Today’s interest rate decision should contribute to a pickup in demand.”
The Bank of Canada governor detailed the economic factors that led to the recent rate cut. He highlighted that core inflation has now settled within the bank’s target range. Although housing inflation, which has been a major contributor to headline inflation this year, is gradually easing, prices remain high. Additionally, global oil prices have declined.
He also pointed out that the economy is experiencing an oversupply of goods and services. Many Canadians are still reducing their discretionary spending as inflation and high interest rates have eroded their purchasing power over the past few years.
The governor indicated that if the economy continues to align with the Bank of Canada’s projections, further reductions to the policy rate are likely. However, he emphasized that the timing and extent of these cuts will be determined by future economic data and its effects on the bank’s inflation outlook.
Reiterating a familiar stance, he stated that the Bank of Canada will make rate decisions on a meeting-by-meeting basis.
Following the central bank’s announcement, major banks including TD Bank, Scotiabank, BMO, CIBC, RBC, and National Bank lowered their prime rates by 50 basis points, from 6.45% to 5.95%, on Wednesday afternoon.
