On Wednesday, the Bank of Canada announced its decision to reduce its key interest rate by half a percentage point to 3.75 per cent. It’s down from 4.25 per cent and the fourth rate cut this year.
The inflation rate dropping to 1.6 per cent in September, due to excess supply decreasing inflation in goods and services and lower global oil prices knocking down gas prices contributed to the decision, according to a news release from the BoC. The Bank expects inflation to remain close to its target of two percent.
“I think inflation was the big thing they were looking for,” said Adam Pukalo, Futures Commodity Advisor with Ventum Financial on Wednesday following the announcement. “Now if the economy evolves broadly within their forecast, they do expect to reduce rates further, however they do leave themselves some wiggle room saying the timing and pace of further reductions in the policy rate will be really guided by incoming information and their assessment.”
Canada’s economy grew by 2 per cent in the first half of 2024, says the Bank, and the expectation is it will continue to grow by another 1.75 per cent. “Consumption has continued to grow but is declining on a per person basis. Exports have been boosted by the opening of the Trans Mountain Expansion pipeline. The labour market remains soft—the unemployment rate was at 6.5% in September. Population growth has continued to expand the labour force while hiring has been modest. This has particularly affected young people and newcomers to Canada. Wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply.” reads the news release.
Another factor in the decision was expectations of Canada’s Growth Domestic Product. The Central Bank anticipates the country’s GDP to grow 1.2 per cent this year, then 2.1 per cent next year, and another 2.3 per cent in 2026. The BoC’s forecast “largely reflects the net effect of a gradual pick up in consumer spending per person and slower population growth. Residential investment growth is also projected to rise as strong demand for housing lifts sales and spending on renovations. Business investment is expected to strengthen as demand picks up, and exports should remain strong, supported by robust demand from the United States.”
“Overall I do see rates still kind of headed a little bit lower,” said Pukalo. “I do think that inflation is a bit of a wave – it kind of goes up then goes down, and now we are going down right now and that doesn’t mean that the wave can’t come back up.”
In response to the interest rate going down, Canadian banks, such as RBC, T-D, B-MO, Scotiabank, CIBC, National Bank, Desjardins, Laurentian, and E-Q Bank, say they too have decreased their respective prime rates by 0.5 per cent.
The Bank of Canada will make its next interest rate decision on December 11.
You can find Pukalo’s reaction to the Bank of Canada’s announcement in the “unfiltered” section of SaskAgToday.com and the full Bank of Canada news release by clicking here.
