The Bank of Canada claimed victory over high inflation as it lowered interest rates by 50-basis points and telegraphed that more reductions are likely in coming months.
The latest rate cut was widely expected by economists and priced into financial markets. The central bank’s trendsetting overnight interest rate now stands at 3.75%.
The Bank of Canada has lowered interest rates a total of 1.25% over four consecutive policy meetings.
The latest 50-basis point reduction comes after Canada’s inflation rate fell to 1.6% in September of this year, down from a peak of 8.1% in June 2022.
In speaking to media, Bank of Canada Governor Tiff Macklem said that the battle against high inflation appears to have been won, and that the central bank’s focus has shifted from lowering inflation to maintaining it around the annualized 2% 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,” said Macklem.
The governor added that the Bank of Canada expects to lower interest rates further in coming months, though future decisions will depend on economic data.
The most recent data points to an economic slowdown across Canada, which gives the Bank of Canada another reason to continue lowering interest rates and spark a recovery.
The central bank now forecasts that inflation will remain around 2% through 2026 and that economic growth will accelerate in both 2025 and 2026.
The Bank of Canada’s final interest rate decision of the year is scheduled for Dec. 11.