Bank of Canada cuts rates, says fight against inflation 'worked'

Bank of Canada cuts rates, says fight against inflation 'worked'

The Bank of Canada has reduced its key interest rate to 3.75 percent
The Bank of Canada has reduced its key interest rate to 3.75 percent. Photo: Dave Chan / AFP/File
Source: AFP

Canada's central bank cut its key interest rate by half a point Wednesday, reducing it to 3.75 percent and offering borrowers further relief as it claimed the battle against inflation had proven successful.

Canada had held its benchmark rate steady for almost a year at 5.0 percent, the highest level in two decades, before initiating a cut in early June. It was the first G7 country to begin trimming rates after a protracted period of inflation.

Following three consecutive quarter point cuts, most analysts had forecast more aggressive action for the bank's October announcement, after figures earlier this month showed inflation had dipped below two percent.

"We took a bigger step today because inflation is now back to the 2% target and we want to keep it close to the target," Bank of Canada governor Tiff Macklem told reporters following the announcement.

Read also

Asian markets fluctuate as traders digest China rate cut

Macklem said that a broad set of data "suggests we are back to low inflation."

"Now our focus is to maintain low, stable inflation. We need to stick the landing," he added.

The central bank said it expects to cut rates further if the economy develops in line with its forecast.

But Macklem warned the bank was "now equally concerned about inflation coming in higher or lower than expected."

CIBC Economics analyst Avery Shenfeld said Wednesday's "outsized rate cut was a no-brainer."

"The statement plants a victory flag in the battle against inflation, which is now definitively expected to run around the two percent target," he added.

James Orlando, a senior economist at TD Bank, said "rates are still way too high given the state of the economy," forecasting further cuts through 2025.

Read also

China's central bank cuts two key rates to boost economy

Asked whether Canadians should expect another sharp rate reduction at the bank's next meeting in December, Macklem said he's "not going to handicap the next move," stressing central bank governors would continue making decisions based on the most up-to-date data.

'Heavy burden'

Canadians were weighed down by high borrowing costs as rates spiked to combat inflation that set in during the coronavirus pandemic.

The central bank's move is likely to offer relief to a range of borrowers, notably homeowners with variable rate mortgages, with the high cost of housing consistently ranked as a central concern for Canadians.

Macklem told reporters that Canadians can now "breathe a sigh of relief."

"It has been a long road back from the high inflation we experienced coming out of the pandemic," he said.

"It has been a long fight... but it has worked," he added.

"We are coming out the other side."

PAY ATTENTION: Сheck out news that is picked exactly for YOU ➡️ find the “Recommended for you” block on the home page and enjoy!

Source: AFP

Authors:
AFP avatar

AFP AFP text, photo, graphic, audio or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. AFP news material may not be stored in whole or in part in a computer or otherwise except for personal and non-commercial use. AFP will not be held liable for any delays, inaccuracies, errors or omissions in any AFP news material or in transmission or delivery of all or any part thereof or for any damages whatsoever. As a newswire service, AFP does not obtain releases from subjects, individuals, groups or entities contained in its photographs, videos, graphics or quoted in its texts. Further, no clearance is obtained from the owners of any trademarks or copyrighted materials whose marks and materials are included in AFP material. Therefore you will be solely responsible for obtaining any and all necessary releases from whatever individuals and/or entities necessary for any uses of AFP material.