The Bank of Canada (BoC) reduced its policy rate by 50 basis points to 3.75% on Wednesday, in line with market expectations, as the central bank aims to bolster economic growth while maintaining inflation near its 2% target.
In a statement, the BoC explained, “With inflation now back around the 2% target, Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range.”
Governor Tiff Macklem, in a press conference following the announcement, said the central bank now views inflation risks as "reasonably balanced." This represents a shift from September, when the BoC expressed concerns that the economy could weaken excessively and inflation might drop too much.
Macklem reiterated the bank's focus on keeping inflation anchored around the 2% mark and indicated that future rate cuts are on the table, depending on economic conditions.
Future policy adjustments will be guided by incoming data. “The timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook,” the statement noted. The central bank left the door open for either additional cuts or a pause, depending on economic trends.
Analysts at Bank of America expect the BoC to lower the policy rate by an additional 25 basis points at its December meeting, though the possibility of holding rates steady or opting for a larger 50bps cut remains.
The central bank has signaled that it is prepared to adjust its approach if inflation and economic activity deviate from its forecasts. The BoC estimates that the neutral rate lies between 2.25% and 3.25%, suggesting further cuts may be required to reach that level.