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Bank of Canada Cuts Rates by 25bps as Expected
TOPICSTags: Bank of Canada, Cut Rates, Inflation, Tiff Macklem
On Wednesday, the Bank of Canada reduced its key policy rate by 25 basis points to 4.25%, in line with expectations. Governor Tiff Macklem noted that due to sluggish economic growth, a larger rate cut might be necessary to support the economy.
The central bank had maintained its benchmark rate at a two-decade high of 5% for a year, before initiating an easing cycle in June. Wednesday’s move marked the third consecutive rate cut, with the bank pointing to further easing in inflationary pressures.
Inflation dropped to a 40-month low of 2.5% in July, though it remains above the BoC’s 2.0% target. However, the economy is now performing below the bank’s forecast from just six weeks ago.
(Graph of CPI, Interest Rate and GDP, Source: Bank of Canada)
This weakening economic outlook has strained the country’s ability to accommodate a rapidly growing workforce, leading to higher unemployment and increasing pressure for continued rate cuts. Some economists suggest that slower growth could push the bank toward a larger 50 basis point rate cut in October or December. Macklem also acknowledged the possibility of a bigger cut if economic conditions deteriorate further.
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