On Wednesday morning, the Bank of Canada announced an interest rate cut of 50 basis points for their October decision, and that brings the policy rate down to 3.75%. This is the lowest the rate has been since October 2022. Also, the central bank has not lowered the policy rate this dramatically since March 2020.
In tandem with the rate announcement, the BoC released a statement on Wednesday morning, and that underlined that inflation is now "back around" to the 2% target, and that played heavily into the Bank's decision to bring the policy rate down "to support economic growth and keep inflation close to the middle of the 1% to 3% range."
"If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further. However, the timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook," the statement also said. "We will take decisions one meeting at a time. The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target."
A cut of some kind was certainly anticipated; amongst economists with Canada’s ‘Big Five’ banks, the consensus was that the policy interest rate would be lowered by 50 bps. CIBC Economist Avery Shenfeld went as far to say that a 75 bps cut — a “mega-move,” he coined it — was on the table for the October decision.
The past three rate announcements (since June) have culminated in back-to-back quarter-point cuts, and those had already brought the policy rate down from a 23-year high of 5% to 4.25%.
October’s rate decision marks the second-last of the year. The next announcement is scheduled for December 11, 2023, and the BoC has recently released the schedule for 2025 as well.
Although there’s no saying for certain, indicators like Consumer Price Index, as mentioned, gross domestic product, and employment numbers continue to swiftly soften, and that makes a fairly strong case for more interest rate cuts to come. In particular, economists with Scotiabank are calling for the policy rate to come down to 3% by spring “and stay there throughout the rest of 2025.”
