In a bold move, the Bank of Canada slashed its key interest rate by half a percentage point to 3.75% on Wednesday, exceeding expectations and offering relief to borrowers as inflation falls in line with the bank’s 2% target.
The rate cut marks a significant shift in the bank’s monetary policy, following three consecutive quarter-point reductions. Governor Tiff Macklem attributed the decision to the economy’s progress in tackling inflation, citing a broad set of data indicating a return to low inflation.
“This is a major milestone,” Macklem said. “Canadians can now breathe a sigh of relief. We’ve been through a long fight against high inflation, but it has worked. We’re coming out the other side.”
The move is expected to bring welcome relief to homeowners with variable-rate mortgages, consumers with floating-rate loans, and small businesses with variable-rate credit lines. Housing costs have consistently topped Canadians’ list of concerns, and Macklem acknowledged this.
Analysts praised the decision, with CIBC Economics’ Avery Shenfeld calling it a “no-brainer.” The bank signaled potential further rate cuts if economic forecasts hold, while warning of equal concern over inflation rising or falling beyond expectations.
Canada’s inflation rate dipped below 2% in September, prompting the aggressive rate cut. The global economy is forecast to grow 3% annually through 2026, with Canada’s economy expected to expand 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026.
As the bank balances monetary policy to support growth and maintain low inflation, Canadians can anticipate continued economic stability. With this rate cut, the Bank of Canada reaffirms its commitment to supporting the economy while keeping inflation in check.
