Bank of Canada Delivers Jumbo Rate Cut

In a move that aligned with market expectations, the Bank of Canada (BoC) today announced a significant 50-basis-point reduction in its key interest rate. The decision, which brings the policy rate down to 3.75%, was made at the central bank’s meeting on Wednesday.

In its accompanying statement, the BoC indicated that it anticipates inflation to remain near its target over the coming months, with upward and downward pressures balancing. The bank also noted that the overall economy continues to operate with excess capacity.

While the central bank maintained its growth forecast for 2024 at 1.2%, it slightly adjusted its projections for 2025 and 2026. The economy is now expected to expand by 2.1% in 2025 and 2.3% in 2026.

Inflation is projected to average 2.5% in 2024, down from the previous estimate of 2.6%. For 2025 and 2026, the forecasts were lowered to 2.2% and 2.0%, respectively. The BoC also emphasized that the labour market remains soft.

Market Reaction

Following the BoC’s policy announcement, the Canadian Dollar weakened against the US Dollar. The USD/CAD exchange rate surged, approaching recent highs near 1.3850.