The Bank of Canada claimed victory against high inflation on Wednesday as it delivered a supersized interest rate cut and signalled its policy rate will likely continue falling in the coming months.
The half-percentage point interest rate cut marks the fourth consecutive rate cut since June and brings the central bank's policy interest rate down to 3.75 per cent.
With annual price growth now around two per cent, governor Tiff Macklem says the Bank of Canada's job has shifted from lowering inflation to maintaining it around the inflation target.
“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,” Macklem said in his opening statement.
Canada’s inflation rate fell to 1.6 per cent in September, solidifying forecasters’ expectations for a larger rate cut. Bigger cuts mean the rate can be lowered faster."
The recent data has allowed the Bank of Canada to more decisively plant the victory flag in its battle to get inflation to its two per cent target on a sustainable basis," wrote CIBC chief economist Avery Shenfeld in a client note.
Macklem said the central bank expects it will lower the interest rate further — so long as the economy evolves in line with its forecast — but he stopped short of saying whether the he expects another half-point cut is likely in December.
"I'm not going to handicap the next move," Macklem said. "I think we've been pretty clear on the direction. And I think we've been pretty clear that the timing and the pace is going to depend on how the data evolves."
He later went on to say that it's difficult to lay out a clearer trajectory on interest rates because the central bank "doesn't know the future."
"We're discovering how the economy is evolving, like everybody else, and based on the best available information we have at the time, we'll take our decisions."
The Bank of Canada attributes the slowdown in price growth to shelter price inflation easing, supply outpacing demand in the economy and global oil pricing falling.
It’s now forecasting inflation will remain around the two per cent target throughout its projection horizon, which extends to 2026.
High interest rates have sent a chill through the Canadian economy, slowing growth and loosening the labour market.
The central bank says in its monetary policy report that while layoffs have remained stable, businesses have pulled back on hiring, which has disproportionately affected young people and newcomers.
As interest rates continue to come down, the Bank of Canada is projecting economic growth to pick back up in 2025 and 2026.
“High inflation and interest rates have been a heavy burden for Canadians. With inflation now back to target and interest rates continuing to come down, families, businesses and communities should feel some relief,” Macklem said.
The Bank of Canada’s next interest rate announcement is scheduled for Dec. 11.
This report by The Canadian Press was first published Oct. 23, 2024.
