Analysts predicted a rate cut as all but certain
The Bank of Canada (BoC) has announced a cut to its policy interest rate. The cut of 0.25 per cent brings the BoC’s rate down to 4.25 per cent.
While a cut was predicted by markets and analysts, with a greater than 100 per cent likelihood priced in leading up to today’s announcement, the degree of the cut was a source of some speculation. Some economists and analysts called for a 0.50 per cent cut to compensate for what they viewed as a late start to Canada’s cutting cycle and signs of a weakening economy.
“With continued easing in broad inflationary pressures, Governing Council decided to reduce the policy interest rate by a further 25 basis points,” a press release announcing the cut reads. “Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up.”
The July CPI print released in late August showed key metrics for inflation falling closer to the BoC’s two per cent target rate. Moreover, as other inflation metrics have come down shelter inflation has become a larger piece of overall Canadian CPI. A cut in rates, therefore, may have the additional effect of curbing that aspect of inflation.
Q2 GDP growth numbers, released at the end of August, actually surprised to the upside. GDP grew by more than expected, following similarly slow — but positive — growth in Q1. While those numbers are very low and represent extremely sluggish growth, there is some sign that Canada may have negotiated a ‘soft landing.’
“Governing Council is carefully assessing these opposing forces on inflation. Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook. The Bank remains resolute in its commitment to restoring price stability for Canadians,” the release reads.
