Tiff Macklem, the governor of the Bank of Canada (BoC), told the reporters after reducing the rate announcement that it was a piece of good news.
The Bank of Canada reduced its benchmark rate on Wednesday by 50 basis points to 3.75 per cent. It is one of the most significant moves in four years, and now Canada has returned to a low inflation era.
Since June, the Central Bank of Canada has reduced its benchmark rates four times in a row after raining rates to a 20-year high to fight against the increasing prices. In September, inflation decreases to 1.6 per cent, less than its target of 2 per cent.
There was a sigh of relief among Canadians. Tiff Macklem, the governor of the Bank of Canada (BoC), told the reporters after reducing the rate announcement that it was a piece of good news, that even though the battle against inflation was a long one, it was a successful one and Canada is emerging on the other side of it.
The economic growth was affected due to lower demand, low company sales, and uncertain consumer sentiment, even as the three prior reductions were 75 basis points.
According to Macklem, the present interest rate should help boost demand, and the Bank of Canada would want to see the GDP strengthen. Economists and analysts predict a significant rate cut in December.
CIBC Chief Economist Avery Shenfeld wrote in a note that based on the reasoning put forth to support this decision of rate cut, it would take another significant event to prevent another cut of that level in December.
The last time the Bank of Canada reduced the interest rates by 50 basis points was during a meeting in March 2020.
The headline inflation rate of 1.6% in September raised concerns that the high cost of borrowing has prevented the price increase more than what the economy required.
Macklem stated that his present focus is on keeping inflation low and stable.
The money market is at a 25-basis point cut in the final monetary policy decision announced on December 11. The change of another 50-basis point cut is more than 25 percent.
There is less chance of another 50 basis points in December. According to the Ballinger Group FX markets expert Kyle Chapman, the decision will be up to the Bank of Canada.
The central bank states that the neutral rate, which is between 2.25 and 3.25 per cent, is where the monetary policy is not restricting growth or boosting growth.
Macklem said that the bank would lower rates again if the economy continued to develop as expected, at the same pace as estimated by the recent data.
High rates have caused the growth of the economy to become weak. The gross domestic product (GDP) for July increased by just 0.2 per cent every month, and preliminary data indicates that the growth will probably remain stagnant in August.
The bank updated its estimation for quarterly and annual growth in its latest monetary policy report (MPR), released on Wednesday, along with the announcement of the rate cuts.
It now expects the GDP growth in the third quarter to be 1.5 per cent, reduced from the 2.8 per cent estimated in July, although it maintained the full-year forecast at 1.2 per cent.
The MPR estimates the overall annual inflation rate will be 2.5 per cent this year, 2.25 per cent in 2025, and 2 per cent in 2026.
The bank is still worried about whether the inflation increase or go down than expected. Macklem states that the economy will perform well when the inflation is at 2 percent.
Now, Canadians are suffering due to the high borrowing costs as the rates increased to fight inflation, which was high due to the coronavirus pandemic,
The decision of the central bank to reduce cuts will give relief to the borrowers, mainly homeowners with variable-rate mortgages, especially since the high cost of housing was one of the main concerns for Canadians
