Top decision-makers at the Bank of Canada are concerned about the central bank’s excessive size. interest rate An interest rate cut in October could send a grim signal about the state of Canada’s economy, according to a new document released Tuesday.
that bank of canada delivered An unusual case of cutting the base interest rate by 50bp As of October 23, it is the fourth consecutive decline, but it is the highest in 15 years, excluding the early days of the COVID-19 pandemic.
These excessive measures resulted in the policy interest rate being lowered to 3.75%.
But a summary of the board’s deliberations on the decision shows concerns among some officials that a decline of that magnitude would spark fears about what the central bank thinks about the trajectory of the economy and the future path of interest rates.
“Because a 50 basis point cut is unusual, some members expressed concern that it could be interpreted as a sign of economic distress, leading to expectations of further moves of this magnitude or the assumption that policy rates will need to be very high. Going forward, we are receptive,” the deliberation read.
Story continues below advertisement
The Bank of Canada’s policy interest rate broadly sets Canada’s borrowing costs. The central bank’s job is to keep inflation at 2%, raising interest rates when price pressures are too high and lowering them out of concern that a slowing economy could push inflation well below target.
Get weekly money news
Receive expert insights and Q&A information on the market, housing, inflation, and personal finance every Saturday.
A sharp drop in policy interest rates could signal concerns that monetary policy has become too tight for the economy to function healthily and the Bank of Canada is lagging behind, a sign that a steeper economic contraction could be coming.
1:57
Mortgage Renewal Wave Will Raise Delinquency Rates in 2025: CMHC
with Inflation fell to 1.6% in September – Bank of Canada reaches target faster than expected – Government committee indicates growing confidence that inflation is under control.
Trending Now
-
A US election poll conducted in Iowa is causing a stir. Can you predict the race?
-
Three people charged in Brampton Hindu temple protest as India’s Modi weighs in
At the same time, a weak labor market and a more pronounced economic slowdown in the second half of 2024 have convinced central bank officials that the economy is clearly in a state of “oversupply.” The Bank of Canada expects a return to growth in the coming years, but the committee noted that the exact timing of the rebound is not yet known and that there is a risk that inflation will fall too far below 2 per cent in the meantime.
Story continues below advertisement
The Governing Council discussed a more general 25-basis-point measure last October, but a ‘strong consensus’ has formed around a larger 50-basis-point move.
Officials sought to clarify. However, Canadians and market watchers should not necessarily expect a half-point cut at every meeting going forward, and future decisions will be made “one meeting at a time, guided by earnings data,” the communication emphasized.
The Bank of Canada’s final interest rate decision for the year is scheduled for Dec. 11, with another rate cut widely expected.
1:42
Are you looking into mortgage interest rates? Pay attention to the US election
