Bank of Canada cuts rates, says fight against inflation ‘worked’
FILE PHOTO: Governor of the Bank of Canada Tiff Macklem walks outside the Bank of Canada building in Ottawa, Ontario, Canada June 22, 2020. REUTERS/Blair Gable/File Photo
Ottawa, Canada — Canada’s central bank cut its key interest rate by half a point Wednesday, reducing it to 3.75 percent and offering borrowers further relief as it claimed the battle against inflation had proven successful.
Canada had held its benchmark rate steady for almost a year at 5.0 percent, the highest level in two decades, before initiating a cut in early June. It was the first G7 country to begin trimming rates after a protracted period of inflation.
Following three consecutive quarter point cuts, most analysts had forecast more aggressive action for the bank’s October announcement, after figures earlier this month showed inflation had dipped below two percent.
“We took a bigger step today because inflation is now back to the 2% target and we want to keep it close to the target,” Bank of Canada governor Tiff Macklem told reporters following the announcement.
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Article continues after this advertisementMacklem said that a broad set of data “suggests we are back to low inflation.”
Article continues after this advertisement“Now our focus is to maintain low, stable inflation. We need to stick the landing,” he added.
The central bank said it expects to cut rates further if the economy develops in line with its forecast.
But Macklem warned the bank was “now equally concerned about inflation coming in higher or lower than expected.”
CIBC Economics analyst Avery Shenfeld said Wednesday’s “outsized rate cut was a no-brainer.”
“The statement plants a victory flag in the battle against inflation, which is now definitively expected to run around the two percent target,” he added.
James Orlando, a senior economist at TD Bank, said “rates are still way too high given the state of the economy,” forecasting further cuts through 2025.
Asked whether Canadians should expect another sharp rate reduction at the bank’s next meeting in December, Macklem said he’s “not going to handicap the next move,” stressing central bank governors would continue making decisions based on the most up-to-date data.
‘Heavy burden’
Canadians were weighed down by high borrowing costs as rates spiked to combat inflation that set in during the coronavirus pandemic.
The central bank’s move is likely to offer relief to a range of borrowers, notably homeowners with variable rate mortgages, with the high cost of housing consistently ranked as a central concern for Canadians.
Macklem told reporters that Canadians can now “breathe a sigh of relief.”
“It has been a long road back from the high inflation we experienced coming out of the pandemic,” he said.
“It has been a long fight… but it has worked,” he added.
“We are coming out the other side.”
