November 21, 2024
Bank of Canada Cuts 50 Basis Points to ‘Stick the Landing’ #CanadaFinance

Bank of Canada Cuts 50 Basis Points to ‘Stick the Landing’ #CanadaFinance

CashNews.co

(Bloomberg) — The Bank of Canada stepped up the pace of interest-rate cuts and signaled that the post-pandemic era of high inflation is over.

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Policymakers led by Governor Tiff Macklem lowered the benchmark overnight rate to 3.75% on Wednesday, the biggest reduction in borrowing costs since March 2020 during the early days of the pandemic.

The jumbo cut — expected by markets and economists in a Bloomberg survey — aims to boost economic growth and keep inflation close to the 2% target. Headline price pressures slowed to 1.6% in September and are no longer as broad, with inflation expectations now trending closer to normal.

“All this suggests we are back to low inflation,” Macklem said in his prepared opening remarks. “Now our focus is to maintain low, stable inflation. We need to stick the landing.” The bank now sees upward and downward risks to its inflation projection as “reasonably balanced,” he added.

Officials reiterated that they expect to reduce the policy rate further if the economy evolves in line with their expectations, but they cautioned that the “timing and pace” of future cuts will be based on incoming data.

The loonie fell to a session low of C$1.3853, its weakest mark since early August, after the decision. Short-term Canadian debt rallied, outperforming US Treasuries and pulling the two-year Canada benchmark yield briefly below 3%.

The Bank of Canada’s latest forecasts see policymakers achieving a so-called soft landing, where inflation normalizes without a deep economic downturn. Gross domestic product growth, which is expected to be just 1.2% this year, should accelerate next year to just over 2%, while inflation is expected to remain near the midpoint of the 1% to 3% target range, the central bank said.

“We want to see growth strengthen. Today’s interest rate decision should contribute to the pickup in demand,” Macklem said. “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.”

In a news conference, Macklem said there was a “clear consensus” among policymakers to cut by 50 basis points. The jumbo cut suggests a new phase of monetary policy easing, where policymakers focus on returning interest rates to more neutral levels — where borrowing costs neither restrict nor stimulate growth — to avoid slowing the economy too much and having inflation undershoot the target.