In a significant move to provide relief to borrowers, the Bank of Canada announced a half-point cut to its key interest rate on Wednesday, reducing it to 3.75 percent. This decision follows a period of sustained high rates, during which the benchmark rate was held steady at 5.0 percent for nearly a year—the highest level in two decades. The central bank’s latest action reflects its confidence in the successful management of inflation, which has now dipped below the target of 2 percent.
Governor Tiff Macklem stated that the larger cut was a response to favorable inflation figures, emphasizing the bank’s goal to keep inflation close to its target. “We took a bigger step today because inflation is now back to the 2% target,” Macklem said during a press conference. He noted that a comprehensive review of economic data indicated a return to low inflation levels and that the bank’s focus would now shift to maintaining stability.
Following three consecutive quarter-point cuts earlier this year, analysts had anticipated a more aggressive approach for this month’s announcement. The central bank indicated that it might further lower rates if economic conditions align with its forecasts. However, Macklem cautioned that the bank is now equally concerned about potential fluctuations in inflation rates.
Economists reacted positively to the decision, with CIBC Economics analyst Avery Shenfeld describing the cut as a “no-brainer.” He asserted that the move symbolizes a victory in the fight against inflation. TD Bank’s senior economist, James Orlando, echoed this sentiment, stating that rates remain excessively high relative to the current economic climate and predicting further cuts through 2025.
The central bank’s latest rate reduction is expected to alleviate financial pressures for various borrowers, particularly homeowners with variable-rate mortgages. High housing costs have been a persistent concern for Canadians. Macklem reassured the public that the path to low inflation had been challenging but effective. “It has been a long road back from the high inflation we experienced coming out of the pandemic,” he said. “But it has worked, and we are coming out the other side.”
As Canadians brace for the upcoming winter, many can now “breathe a sigh of relief,” knowing that the central bank is committed to supporting economic stability and growth.
