Bank of Canada cuts key interest rate by 50 basis points

The Bank of Canada is lowering its policy rate in a bid to stimulate growth in the Canadian economy to avoid inflation dropping too far below target.

The Bank of Canada delivered a second consecutive interest rate cut of half a percentage point on Wednesday, but signalled the pace of easing may slow as uncertainty builds in the Canadian economy.

The central bank’s policy rate now stands at 3.25 per cent after the fifth rate cut in a row.

The move was widely expected by markets and economists amid signs of a slowdown in Canada’s economy.

Bank of Canada governor Tiff Macklem said in prepared remarks on Wednesday that with the central bank now having “substantially” cut its policy rate since June, future rate decisions will now be taken “one meeting a time.”

“We anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected,” he said. “Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook.”

The central bank’s policy rate broadly sets the cost of borrowing in Canada and is a key input for interest rates Canadians pay on their mortgages and other loans. Monetary policymakers raise the rate to slow spending in the economy and tamp down inflation, and reduce it when it’s time to stimulate growth again.

While inflation has returned to the Bank of Canada’s target of two per cent, the Canadian unemployment rate rose more than expected in November and real gross domestic product undershot the central bank’s most recent forecasts in the third quarter.

Macklem on Wednesday signalled that the Bank of Canada is also expecting growth to come in weaker than expected in the final quarter of 2024.