The Bank of Canada cut its key rate of interest by 50 basis points to three.25% on Wednesday. Here is the text of the Central Bank’s decision:
The Bank of Canada today cut its overnight rate of interest goal to three.25 percent, with the bank rate at 3.75 percent and the deposit rate at 3.25 percent. The bank is constant its course of balance sheet normalization.
The global economy is developing broadly as expected within the Bank’s October Monetary Policy Report (MPR). In the United States, the economy continues to indicate broad underlying strength, with robust consumption and a solid labor market. US inflation has remained stable, with some price pressure continuing. In the euro area, current indicators point to weaker growth. In China, recent policy measures coupled with strong exports are supporting growth, but household spending stays subdued. Global financial conditions have eased and the Canadian dollar has lost value amid the general strength of the US dollar.
In Canada, the economy grew by one percent within the third quarter, barely below the bank’s October forecast, and the fourth quarter also looks weaker than forecast. Third-quarter GDP growth was hit by business investment, inventories and exports. In contrast, each consumer spending and housing activity increased, suggesting that lower rates of interest are starting to spice up household spending. Historic revisions to national accounts have increased GDP levels over the past three years, largely as a result of higher investment and consumption. The unemployment rate rose to six.8 percent in November as employment continued to grow slower than the labor force. Wage growth showed some signs of moderation but stays elevated relative to productivity.
A variety of policy measures have been announced that may impact Canada’s near-term growth and inflation prospects. The reduction in targeted immigration rates suggests GDP growth next yr can be below the bank’s October forecast. The impact on inflation is more likely to be more muted as lower immigration dampens each demand and provide. Other federal and provincial policies – including a short lived suspension of GST on some consumer goods, one-off payments to individuals and changes to mortgage rules – will impact demand and inflation dynamics. The Bank will examine temporary impacts and give attention to underlying trends to guide its policy decisions.
Additionally, the likelihood that the brand new U.S. administration will impose latest tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.
CPI inflation has been around two percent because the summer and is anticipated to average near the 2 percent goal over the subsequent few years. Since October, each the upward pressure on inflation from accommodation and the downward pressure from goods prices have weakened, as expected. Looking ahead, the GST holiday will temporarily reduce inflation, but this can be reversed once the GST break ends. Measures of core inflation will help us assess the trend of CPI inflation.
With inflation hovering around two percent, oversupply within the economy and up to date indicators pointing to weaker growth than expected, the Governing Council decided to chop the important thing rate of interest by an extra 50 basis points to support growth and keep inflation close to maintain the center goal range from – to a few percent. The Governing Council of the ECB has significantly reduced the important thing rate of interest since June. In the longer term, we’ll examine the necessity for further key rate of interest cuts step-by-step. Our decisions are guided by incoming information and our assessment of the impact on the inflation outlook. The Bank goals to make sure price stability for Canadians by keeping inflation near the 2 percent goal.
