Good morning. The central bank has announced a reduction in the policy interest rate by 50 basis points, bringing it down to 3.75%. This marks the fourth consecutive decrease since June. "We took a bigger step today because inflation is now back to the 2% target and we want to keep it close to the target," said an official.
Inflation has decreased significantly from 2.7% in June to 1.6% in September, with expectations of it being around 2% in October. Core inflation measures are also below 2½%, indicating a return to low inflation levels, which is seen as positive news for Canadians.
The central bank's focus is now on maintaining stable inflation levels. While household spending and business investment have increased this year, they remain soft, contributing to reduced inflationary pressures. With inflation at 2%, there is a desire for stronger growth, and today's interest rate decision aims to stimulate demand.
Forecasts suggest that inflation will stay near the target level over the projection period. Any upward pressure from shelter and services should gradually lessen, while stronger demand is expected to balance out downward pressures on inflation.
Future policy rate cuts are anticipated if economic conditions align with forecasts, supporting demand and keeping inflation on target. Decisions on further interest rate reductions will be made based on new information and its impact on the inflation outlook.
Economic growth was about 2% in the first half of this year and is expected at 1¾% in the second half. The economy still shows excess supply, with a soft labor market and an unemployment rate of 6.5% in September.
Looking ahead, GDP growth is forecasted to strengthen gradually through 2025 and into 2026 due to lower interest rates, consumer spending per person increasing moderately, slower population growth, rising residential investment demand, strengthened business investment as demand increases, and robust export activity driven by strong U.S. demand.
The recent decline in inflation results from lower global oil prices, reduced shelter price inflation within Canada, and decreased prices for many consumer goods such as cars and clothes. Monthly fluctuations may continue but overall projections indicate stability near target levels as upward pressures diminish and excess supply absorbs.
There are risks associated with this outlook; delayed increases in household spending or business investments pose downside risks while lower rates could boost housing activity or wage growth beyond productivity levels pose upside risks amid geopolitical uncertainties.
Despite these uncertainties: "Overall we view the risks around our inflation forecast as reasonably balanced," officials noted—indicating equal concern over potential deviations above or below expectations since optimal functioning occurs when maintaining around a consistent two percent benchmark
In conclusion: “High Inflation And Interest Rates Have Been A Heavy Burden For Canadians" However With Returns To Target Levels And Rate Reductions Families Businesses Communities May Experience Relief Going Forward
"The Bank Is Committed To Maintaining Price Stability For Canadians By Keeping Inflation Close To The Two Percent Target."