Canada's central bank believes its recent rate cut marks a turning point in efforts to combat inflation, but remains cautious about economic growth.
The Bank of Canada's governing council anticipates its second consecutive substantial interest rate reduction has marked a turning point in its battle against inflation. However, they are carefully monitoring the economy due to weaker-than-anticipated growth. The central bank's deliberation summary, released on Monday, provides insights into the council's discussions preceding the December 11 rate cut, which decreased the key interest rate by half a percentage point.
While members initially contemplated a quarter-point reduction, they ultimately lowered the rate to 3.25 per cent, aiming to align it with their so-called neutral rate, where it neither accelerates nor decelerates economic expansion. They acknowledged that reduced immigration targets are likely to impede economic growth next year, and that tariff threats from incoming U.S. President Donald Trump constitute a significant new source of uncertainty. Council members indicated that they would consider further rate reductions but adopt a more gradual approach considering the five consecutive cuts since June, allowing the economy time to react. The next rate decision and quarterly economic forecast are scheduled for January 29th.
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