Bank of Canada reduces the key interest rate by 50 basis points to 3.75 

With a fourth consecutive rate cut since June, the Bank of Canada lowered its policy rate by 50 basis points, bringing the interest rate down to 3.75% from 4.5%, as officials work to keep inflation close to their target.

The move on Wednesday marks the Bank of Canada’s largest rate reduction since the global financial crisis in 2009, excluding the COVID-19 pandemic.

“We took a bigger step today because inflation is now back to the two-percent target, and we want to keep it close to the target,” Bank of Canada Governor Tiff Macklem told reporters on Wednesday.

Inflation has not only returned to the Bank of Canada’s 2% target since the last interest rate cut in September, but it has also fallen below it, reaching 1.6% in the most recent reading.

The Bank of Canada has been reducing rates to support economic growth, which has slowed under the weight of high rates, as inflation concerns have eased. Previously, runaway price increases had prompted the bank’s initial rate-hike campaign, but inflation is now within the target range.

“If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further,” the bank wrote in a news release on Wednesday morning.

The high rates have contributed to a slowdown in Canada’s economic growth. GDP rose by a modest 0.2% in July, and preliminary data suggests that growth will likely stall in August.

In its latest Monetary Policy Report (MPR), published on Wednesday alongside the rate decision, the bank updated its forecasts for quarterly and annual growth.

While it maintained its full-year growth projection at 1.2%, the bank now expects annualized GDP growth in the third quarter to be 1.5%, down from 2.8% in July.

According to the MPR, the annual inflation rate is projected to be 2.5% this year, 2.2% in 2025, and 2.0% in 2026.