Bank of Canada Cuts Key Interest Rate to 3.75% in October 24, 2024
The Bank of Canada has delivered a half-point cut, lowering its key interest rate to 3.75%.
This half-point reduction is the largest since March 2020, when the Bank acted quickly at the start of the pandemic. According to Macklem, this decision aims to keep inflation near the 2% target and support the economy’s recovery.
Inflation, which slowed to 1.6% in September, is now less widespread, and expectations are falling closer to normal. “All this suggests we are back to low inflation,” Macklem said during his remarks. “Our focus now is to maintain low, stable inflation. We need to stick the landing.”
The Bank sees the risks to inflation as balanced, meaning prices are no longer expected to rise sharply or fall drastically.
More Cuts May Be on the Way
The Bank of Canada said it could reduce the policy rate further if economic conditions continue as expected. However, officials emphasized that any future cuts will depend on economic data and how things evolve in the coming months.
The announcement had an immediate impact:
Bonds rallied, briefly pushing the yield on two-year Canada notes below 3%.
The Canadian dollar (CAD) fell 0.2%, trading at C$1.385 per US dollar by mid-morning in Ottawa.
The Bank’s goal is to achieve a soft landing, where inflation returns to normal without causing a sharp economic downturn. Growth in gross domestic product (GDP) is expected to remain modest at 1.2% this year but should pick up to just over 2% next year. Inflation is projected to stay within the Bank’s 1-3% target range.
What It Means for Canadians?
Lower interest rates can provide some relief for borrowers by reducing mortgage and loan payments. However, savers may see lower returns on their savings accounts. If the economy grows steadily, the housing market could become more active, with more Canadians taking advantage of lower borrowing costs.
The mortgage rates, which are tied to the prime rate, currently 6.45%, will drop to 5.95% following this cut.
As the Bank continues to adjust its policies, Canadians can expect further announcements depending on new economic data. The focus remains on keeping inflation under control while promoting steady growth.
This rate cut suggests that the post-pandemic economy is entering a new phase, one where inflation is back under control, and the priority is maintaining a stable recovery.