BOC cuts interest rates by 50 basis pts OTTAWA–For the second time in a row, the Bank of Canada cut its main interest rate by a half-percentage point, saying lower rates are needed to address weaker-than-expected growth and a softening labor market.
At the same time, the central bank said it is pivoting in its approach to future rate decisions. In its policy decision Wednesday, the Bank of Canada is no longer explicitly saying further rate cuts can be expected, as it did in previous rate-policy decisions. Gov. Tiff Macklem said the Bank of Canada has deeply reduced borrowing costs since June, by a cumulative 1.75 percentage points, and the impact from those decisions have yet to work their way through the economy.
“We anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected,” Macklem said, according to prepared remarks he is set to deliver at a Wednesday morning press conference. “Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook.”
In its final decision of 2024, the central bank lowered its target for the overnight rate to 3.25% from 3.75%, marking the fifth straight reduction in interest rates. The benchmark interest rate sat at 5% at the start of 2024. This also marks the first time excluding either a recession or extraordinary events—notably the Covid-19 pandemic, the 2008-2009 financial crisis, and the Sept. 11, 2001 terrorist attacks — that the central bank has delivered back-to-back half-point cuts.Eleven of 15 economists surveyed by The Wall Street Journal predicted a half-point cut.
Canada’s central bank has been at the forefront among Group of Seven monetary authorities in reversing rate hikes required to tame historically-high inflation.
Canadian growth has been tepid. Gross domestic product slowed sharply in the third quarter to 1% annualized, and is up 1.5% from a year ago. Macklem said early data suggest GDP will be weaker in the fourth quarter relative to the central bank’s forecast of a 2% annualized advance.
Households have been weighed down by their elevated levels of debt, and the prospect in the next two years of renewing their mortgages at higher rates. However, Macklem said consumer spending and existing-home sales are showing signs of a recovery, a sign lower interest rates are beginning to work.