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.
With annual price growth now around 2%, governor Tiff Macklem said the Bank of Canada’s job has shifted from lowering inflation to maintaining it around the inflation target.
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“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,” Macklem said in his opening statement.
“High inflation and interest rates have been a heavy burden for Canadians. With inflation now back to target and interest rates continuing to come down, families, businesses and communities should feel some relief,” he went on to say.
Canada’s inflation rate fell to 1.6% in September, solidifying forecasters’ expectations for a larger rate cut. Bigger cuts mean the rate can be lowered faster.
“The recent data has allowed the Bank of Canada to more decisively plant the victory flag in its battle to get inflation to its two per cent target on a sustainable basis,” wrote CIBC chief economist Avery Shenfeld in a client note.
The governor said the central bank expects it will lower the interest rate further—so long as the economy evolves in line with its forecast— but he stopped short of saying whether the he expects another half-point cut is likely in December.
“I’m not going to handicap the next move,” Macklem said. “I think we’ve been pretty clear on the direction. And I think we’ve been pretty clear that the timing and the pace is going to depend on how the data evolves.”