BoC Cuts Interest Rates By 0.5% To Stimulate Economic Growth

On Wednesday, the Bank of Canada announced a 0.5% (50 basis points) reduction in its policy rate, bringing the overnight interest rate down to 3.75%. With inflation now below the target of 2%—currently at 1.6% as of September—the Bank aims to invigorate the economy. Governor Tiff Macklem emphasized the need for stronger economic growth.

This marks the fourth rate cut since June, highlighting a consistent downward trend in interest rates. Economists are already forecasting another potential cut in December.

Younger workers continue to face high unemployment rates, and business hiring has been sluggish. The reduction in interest rates is expected to lower borrowing costs, encouraging both consumers and businesses to increase their spending.

Economic growth is projected to rise to 2.1% in 2025 and 2.3% in 2026. The Bank of Canada anticipates an increase in GDP per capita next year, driven by a slowdown in population growth coupled with lower interest rates.

Variable interest rates, which are influenced by the BoC's policy rate, will see immediate decreases, while fixed-rate mortgages will remain unaffected for now. Fixed rates are more closely tied to bond markets and various economic factors. Currently, fixed rates are lower than variable rates, but the gap is closing.