23 OCT: The Bank of Canada has implemented a substantial cut to its key interest rate, lowering it by 50 basis points to 3.75%, marking the first reduction of this scale since the COVID-19 pandemic began. This move, double the typical 25-basis-point adjustments seen earlier this year, represents a strategic shift as inflation falls back within target, reducing the urgency of prior rate hikes.
Governor Tiff Macklem outlined the bank’s approach, noting the importance of supporting economic growth now that inflation has stabilized. The goal of this rate cut, he explained, is to stimulate demand and maintain price stability without fueling new inflationary pressures.
Variable-rate mortgage holders may see immediate relief from the change, while those with fixed-rate mortgages are less likely to feel an impact immediately, explained mortgage expert Penelope Graham. Fixed mortgage rates often depend more on bond market trends rather than direct central bank actions.
The decision comes amid economic challenges, including limited job growth and weakened discretionary spending. Macklem highlighted that job growth hasn’t kept pace with the increasing labor force, which particularly affects younger Canadians and newcomers.
Despite the lowered inflation rate, many Canadians have not yet felt meaningful relief, and economists continue to debate the best course forward. CIBC’s chief economist Avery Shenfeld anticipates that another significant rate cut could follow in December, though Macklem emphasized that future decisions would remain driven by economic data.
As the central bank balances stability with support, economists like Stéfane Marion of National Bank call for continued, gradual rate reductions to help cautious consumers navigate rising costs without sparking inflation. This latest cut signifies the Bank of Canada’s commitment to carefully managing economic pressures while aiming to foster gradual growth.
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