The Bank of Canada has cut its policy rate by 50 basis points to 3.25 per cent, a move that was widely expected by economists and markets.
A Fifth Consecutive Cut This Year
This decision marks the fifth consecutive cut by the central bank this year and the second half-point cut in a row to the overnight rate. The last times the bank made two consecutive half-point cuts were at the outset of the pandemic in 2020 and during the 2008 financial crisis.
The overnight rate now sits at the top of the central bank’s neutral range. In a statement, Bank of Canada Governor Tiff Macklem said, "With inflation back to target, we have cut the policy rate by 50 basis points at each of the last two decisions because monetary policy no longer needs to be clearly in restrictive territory."
Growth and Job Numbers
Macklem also pointed out that growth in the second half of 2024 is expected to be slower than forecast. The jobless rate hit 6.8 per cent in November, as the number of jobs grew more slowly than the labour force.
However, some experts disagree with the central bank’s decision. Toronto-Dominion Bank senior economist James Orlando said, "We think this misses the forest for the trees… We don’t see a compelling reason to cut rates further."
A More Gradual Approach
Looking ahead to the bank’s path of rate decisions, Macklem signalled that the 50-basis point moves were over and we should expect "a more gradual approach to monetary policy if the economy evolves broadly as expected." The central bank is expected to provide updated forecasts at its next interest rate decision in the new year.
Reactions from Economists
Reactions from economists have been varied, with some supporting the central bank’s decision while others disagree. Some of the key reactions include:
- "The Bank of Canada has done a great job of communicating its policy framework and making decisions based on data," said one economist.
- "I’m not sure if this is the right time to cut rates further… The economy is still growing, and inflation is back under control," said another.
Next Steps for the Central Bank
The next steps for the central bank will be crucial in determining the future of interest rates. With growth expected to slow down, the central bank may need to reassess its policy framework to ensure that it is supporting economic growth while maintaining price stability.
What’s Driving the Bank of Canada’s Rate Cut?
Bets are high for another big cut by the Bank of Canada as inflation drops and growth slows. But what’s behind the central bank’s decision?
Lower Inflation and Growth Slowdown
The key drivers of the rate cut are lower inflation and a slowdown in economic growth. With inflation back under control, the central bank has room to maneuver and can focus on supporting economic growth.
However, some experts argue that the central bank may have already done too much, and cutting rates further could be counterproductive.
A Pause in Rate Cuts
The Bank of Canada’s decision to cut rates by 50 basis points is a clear signal that it will continue to support economic growth. But with growth slowing down, the central bank may need to reassess its policy framework to ensure that it is supporting economic growth while maintaining price stability.
Timeline for Future Rate Decisions
The next interest rate decision by the Bank of Canada is scheduled for January 29. At this meeting, the central bank will provide updated forecasts and signal its future policy direction.
What to Expect in the Coming Months
In the coming months, investors can expect a more gradual approach to monetary policy as the central bank focuses on supporting economic growth while maintaining price stability.
The Bank of Canada’s decision to cut rates by 50 basis points is a clear signal that it will continue to support economic growth. But with growth slowing down, the central bank may need to reassess its policy framework to ensure that it is supporting economic growth while maintaining price stability.
Sources:
- Bank of Canada press release
- Bloomberg article
- Reuters article
Recommendations:
- Investors should expect a more gradual approach to monetary policy in the coming months.
- The central bank’s decision to cut rates by 50 basis points is a clear signal that it will continue to support economic growth.
- With growth slowing down, the central bank may need to reassess its policy framework to ensure that it is supporting economic growth while maintaining price stability.
Disclaimer:
This article is for informational purposes only and should not be considered as investment advice.
