As forecast by a majority of market watchers, the Bank of Canada has gone ahead with a one-half of one-percent cut (50 basis points) in its benchmark Policy Rate. It now sits at 3.75%, down from 4.25%.
The move signals a shift away from the Bank’s fight against inflation to an effort to strengthen growth.
September inflation came in at 1.6%, well inside the BoC’s target range of 1.0% to 3.0%. The Bank’s preferred measures of core inflation are also inside the target range.
Bank Governor Tiff Macklem points out that housing inflation, which has been particularly stickie, is finally easing as well. However, unemployment is rising and the forecasts for growth in Gross Domestic Product are declining.
Falling inflation does not mean that prices are dropping. It means that they are not rising as quickly as they were. Generally, Canadians are still holding back on discretionary spending and making adjustments to higher prices imposed over the last three years, or so. But Macklem tried to be upbeat.
“I think the message today is that, with inflation down, Canadians don't have to worry as much about big changes in their cost of living," Macklem said during his news conference after the rate setting was announced.
He also repeated the Bank’s stance that more rates cuts are likely, as long as the economy performs the way the Bank expects.