Bank of Canada accelerates rate cuts, indicating enhanced confidence in inflation outlook

The Bank of Canada (BoC) has cut its overnight interest rate by 50 basis points to 3.75%, stressing its commitment to balance-sheet normalization. The bank highlighted a notable drop in inflation in recent months and expects inflation to continue close to the target during the projected period. In its Monetary Policy Report (MPR), the quarterly core inflation projection remained unchanged at +2%.

The economy grew by about 2% in the first half of the year and is predicted to increase by 1.75% in the second half, according to the BoC, which underlined a moderate pace of economic expansion. Although consumption is still increasing, per capita consumption is decreasing. With the help of lower interest rates, the bank expects GDP growth to strengthen gradually in the next quarters.

In terms of future policy orientation, the BoC said that additional policy rate cuts are expected if the economy continues to grow in line with its most recent projections. However, data will determine when and how quickly any further cuts are made.