The Bank of Canada made a move to cut policy interest rates by 25 basis points, citing easing underlying inflation. This decision comes as the Bank has already reduced its securities holdings by 64% acquired during the pandemic. The target for the overnight rate was lowered to 4.75%, while the Bank Rate and deposit rate were adjusted to 5.0% and 4.75%, respectively.
BOC Governor Tiff Macklem highlighted that inflation is moving towards the 2% target, with wage pressures gradually moderating. Despite a slowdown in employment growth, the economy faces risks related to inflation outlook and the balance between demand and supply.
Macklem hinted at the possibility of further rate cuts if inflation continues to ease. The effectiveness of rate hikes in Canada compared to the US is attributed to the structure of mortgages, where existing borrowers face adjustments in rates, impacting spending habits.
The move by the Bank of Canada reflects a strategic approach to balance inflation and economic growth, indicating a cautious but proactive stance in steering the economy. The decision to lower rates showcases a response to current economic indicators and a commitment to achieving inflation targets in the long term.
Vocabulary List:
- inflation (noun): A general increase in prices and fall in the purchasing value of money.
- securities (noun): Investments such as stocks or bonds.
- acquired (adjective): Obtained or gained possession of something.
- target (noun): A goal or objective that is aimed to be achieved.
- moderating (verb): Reducing the intensity or extremeness of something.
- commitment (noun): The state of being dedicated or responsible for something.
