November 21, 2024
‘Canadians can breathe a sigh of relief,’ Macklem says, as Bank of Canada cuts interest rate by 50 basis points #CanadaFinance

‘Canadians can breathe a sigh of relief,’ Macklem says, as Bank of Canada cuts interest rate by 50 basis points #CanadaFinance

CashNews.co

The Bank of Canada cut its benchmark interest rate by 50 basis points to 3.75 per cent on Wednesday, marking its fourth consecutive cut since June. Canada’s central bank declared monetary policy has worked and that the country is back to its inflation target.

Wednesday’s super-sized cut was widely expected by markets and economists, as inflation slowed to 1.6 per cent in September. The central bank also noted that price pressures are no longer broad-based and that measures of core inflation slipping below 2.5 per cent.

“It’s been a long fight against inflation but it has worked. We’re coming out the other side, and I think Canadians can breathe a sigh of relief. It’s a good news story,” Bank of Canada Governor Tiff Macklem said at a press conference following the interest rate announcement.

“We’re back to low inflation, now we need to keep it there… With inflation staying close to two per cent, Canadians don’t have to worry about big changes in their cost of living. Yes, they’ve got lots of other things to worry about. This is one less thing to worry about.”

Macklem said on Wednesday that the Bank opted to take a bigger step “because inflation is now back to the two per cent target and we want to keep it close to the target.” He also said there was “clear consensus” among the Governing Council that it was appropriate to take a larger step in cutting rates.

Macklem’s remarks denote a shift in tone from the Bank of Canada. The central bank’s previous statements have focused on bringing inflation back to its target range and highlighted the downside risks to inflation. On Wednesday, the governor emphasized that “we are back to low inflation” and that “risks around our inflation forecast are reasonably balanced.”

The Bank reiterated that if the economy evolves in line with its forecast, it will cut its policy rate further to support demand and keep inflation on target, but that “the timing and pace of further interest rate cuts will depend on incoming information and our assessment of its implications for the inflation outlook.”

“Based on the logic offered to justify today’s decision, it would take a significant turn of events to stand in the way of another cut of that magnitude in December,” CIBC economist Avery Shenfeld wrote in a research note following the release of the Bank’s decision.

When asked about the possibility of another 50 basis point cut in December, Macklem reiterated that the timing and pace of the cuts are going to depend on how the data evolve.

Money markets are fully pricing in a 25 basis point cut in the final monetary policy decision announcement of the year on Dec. 11, according to Reuters. They are seeing a more than 25 per cent chance of another 50 basis point cut.