The Bank of Canada has brought its rate cuts announced for 2024 to a total of four.
The Bank of Canada today announced that it has cut interest rates by 50 basis points to 3.75%, as expected.
The announcement followed last week’s inflation rate release, which showed prices rising in September by just 1.6%, below the Bank of Canada’s 2% target: a very similar situation to the same month Eurozone, which also saw a sharp U-turn in inflationary pressures, but which nevertheless saw Christine Lagarde’s ECB step in with a cut, again, of 25 basis points.
While waiting for the Bank of Canada’s verdict, most analysts had already taken for granted the arrival of yet another cut by the institution, which brought the number of rate cuts launched during 2024 to four today.
Many strategists had expected a further cut, for today, Wednesday 23 October, of 50 basis points, compared to some who had estimated a reduction limited to 1/4 of a point.
The more dovish estimates had been motivated by the weakness reported by the country’s GDP.
In particular, Chris McHaney, head of the investment management and strategy division of Global X Investments Canada, interviewed by Wealth Professional, had said in the previous days that he estimated a 50 basis point cut by the Bank of Canada, following the three previous cuts of 25 basis points, citing precisely the trend of headline inflation, which grew by just 1.6% in the month of September.
McHaney himself had indeed cited the persistence of core inflation, which rose by 2.3% in the same month.
However, what was highlighted was the assist to a maxi cut coming from the same Jerome Powell’s Fed which, on September 18, cut the cost of US money by 50 basis points, as well as the trend of the Canadian economy marked by weakness.
“Canada’s economic growth is continuing to be much slower than that of the United States, with GDP up 1.5% on an annual basis or slower since March 2023.”
In markets, traders had priced in a 50 basis point rate cut with a 94% probability.
Rate and inflation outlook: what the Bank of Canada said after the 50 bp cut
The Bank of Canada’s statement announcing the decision reads as follows:
- We expect to cut interest rates further if the economy develops broadly in line with our latest estimates.
- The timing and pace of further rate cuts will depend on incoming information.
- We will make decisions on a meeting-by-meeting basis.
- The labor market remains weak.
- Population growth continued to expand the labor force while hiring remained subdued.
- US growth is expected to be stronger than previously expected while the outlook for China remains weak.
- Euro area growth remained weak, but is expected to recover modestly next year.
- The economy remains in oversupply.
- The BOC forecasts GDP growth (in Canada) of +1.2% in 2024, +2.1% in 2025, +2.3% in 2026.
Statements by Governor Tiff Macklem
Tiff Macklem, Governor of the Bank of Canada, explained today’s rate cut, noting that “today we have taken a bigger step, as inflation is now back to the 2% target and we want to keep it close to that”.
Macklem added that “price pressures are no longer widespread” and that “household spending and business investment have recovered this year, but remain weak”.
The governor announced his intention to continue cutting rates. “We anticipate further cuts to support demand and to keep inflation on target”. In any case, he added, “our monetary policy decisions will be made from time to time”.
The risks to the inflation outlook, added the head of the Bank of Canada, are “reasonably balanced”.
The next meeting of the Central Bank of Canada is scheduled for next December 11, 2024: the markets are currently betting on a further cut in interest rates, again equal to 50 basis points, with a probability of 25%.
Original article published on Money.it Italy 2024-10-23 15:47:30. Original title: Bank of Canada taglia tassi di 50 punti base al 3,75% dopo inflazione sotto target
