The Bank of Canada (BoC) delivered its first big rate cut of half a percentage point as Justin Trudeau’s flailing government tries to get their House in order before an election next year. While BoC 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 supposed two percent target might have been met as they say but people are still feeling the pinch from high grocery prices and rising rents and other costs of goods.
By DESIBUZZCanada Staff With News Files
OTTAWA — The Bank of Canada (BoC) delivered its first big rate cut of half a percentage point as Justin Trudeau’s flailing government tries to get their House in order before an election next year.
While BoC 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 supposed two percent target might have been met as they say but people are still feeling the pinch from high grocery prices and rising rents and other costs of goods.
The half-percentage point interest rate cut marks the fourth consecutive reduction since June and brings the central bank’s policy interest rate down to 3.75 per cent.
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, reported Canadian Press.
BMO chief economist Douglas Porter said his impression of the latest interest rate announcement is that the central bank will likely revert back to quarter-percentage-point rate cuts moving forward.
However, CIBC is still betting on another half-percentage-point cut in December.
The Bank of Canada attributed on Wednesday the slowdown in price growth to shelter price inflation easing, supply outpacing demand in the economy and global oil pricing falling, reported Canadian Press.
It’s now forecasting inflation will remain around the two per cent target throughout its projection horizon, which extends to 2026.
The Bank of Canada’s next interest rate announcement is scheduled for Dec. 11.
Key highlights
*The BoC has historically been hesitant to adjust rates more than 25 bps at a time, so today’s decision to cut Canadian interest rates by 50 bps likely reflects concerns about a slowing economy and the risks of deflation
*Inflation in the third quarter of the year was lower than BoC estimates; the rate in September fell to 1.6%, the first time this rate has been below 2% in more than three years
*The employment rate has been trending downward as employment growth lags population growth; on a year-over-year basis, employment was up 1.5% in September, while the population (aged 15+) increased 3.6%
*When a large cut is announced, it demonstrates a concern that consumers are running out of gas and that the BoC is hoping to ignite the markets before tipping into a recession
*Wednesday’s BoC rate announcement is surely welcome news; however, a more tangible CRE recovery – defined by transaction activity – is still only percolating, rather than materializing in the market
*Even with a cut of this magnitude, CRE transactions will likely remain on the sidelines until mid-2025, when there is confidence that monetary conditions have balanced
With Files from Canadian Press
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