The Bank of Canada (BoC) revealed a significant half-percentage point interest rate cut on Wednesday, marking the fourth consecutive decrease since June and bring the central bank's interest rate to 3.75%.
With the annual inflation rate now below the central bank's 2% target, Governor Tiff Macklem indicated the focus has shifted from reducing inflation to maintaining it at the target level.
Canada’s inflation rate fell to 1.6% in September, bolstering expectations for a more substantial rate cut, which allows for quicker reductions in the future.
“We took a bigger step today because inflation is now back to the 2% target and we want to keep it close to the target,” Macklem said in his opening statement.
While Macklem stated further interest rate cuts are anticipated, contingent on the economy aligning with forecasts, he refrained from committing to another half-point cut in December.
The BoC attributed the slowdown in inflation to a decrease in shelter price inflation, an increase in supply relative to demand, and declining global oil prices.
The central bank forecasted inflation would remain around the 2% target through 2026.
High interest rates have impacted the Canadian economy by slowing growth and loosening the labour market. The BoC's monetary policy report noted while layoffs have remained steady, hiring has slowed significantly, particularly affecting young people and newcomers to the workforce.
Looking ahead, the Bank of Canada projects economic growth will rebound in 2025 and 2026 as interest rates continue to decrease.