As expected in our event guide, the The Bank of Canada (BOC) cut overnight interest rates by 50 basis points from 4.25% to 3.75%. In October. This is the fourth consecutive reduction in interest rates since June.
In its statement, the central bank welcomed inflation reaching the 2% target and core inflation measures falling below 2.5%. Bank of Canada expects consumer prices to remain “close to target” With upward and downward pressures roughly balanced.
the The labor market remains a concernAs the population continues to grow amid a modest employment environment, while wage growth remains high compared to productivity growth.
In general, the BOC noted this Growth may slow In the second half of the year, he expects GDP to “gradually strengthen” as interest rates fall, consumer spending recovers, and population growth declines.
Bank of Canada members expect “further interest rate cuts” If the economy develops in line with expectations. But the statement stressed that the members “will take the decisions.” One meeting at a time.“
Link to the official October Monetary Policy Statement from the Bank of Canada
In its quarterly outlook, the Bank of Canada expects the third quarter of 2024 growth At 1.5%, it is lower than the 2.0% GDP growth expected for the second half of 2024 in the July forecast. However, it is expected to reach 2.0% in 2025.
Economic inflation It is now expected to reach 1.6% in September 2024, a significant decline from the 2.7% expected in July. Consumer prices are now expected to remain close to target in the second half of the year, an improvement on the July forecast of 2.5%.
BOC has made minor changes to Laboratory market Expectations, with the unemployment rate remaining at around 6.4% to 6.5%. The outlook remains cautious, with oversupply expected to persist as new arrivals and young people continue to face higher-than-average unemployment rates amid falling labor demand.
Link to the Bank of Canada’s official monetary policy report for October
In his press conference, Bank of Canada Governor Tiff Macklem shared that there was a “clear consensus” among members to cut interest rates by 50 basis points.
Contrary to previous statements in which he stressed the need to bring inflation to target, Macklem emphasized that “we are back to low inflation” and that “the risks surrounding our inflation outlook are reasonably balanced.”
Macklem noted:
“Now our focus is on keeping inflation low and stable. We need to stick to the downside.”
Link to Bank of Canada Governor Macklem’s press conference
Market reactions
Canadian dollar against major currencies: 5 minutes
Overlay of the Canadian dollar against major currencies Chart by TradingView
The Canadian dollar began to decline near the open of the US session and saw a new, wide-ranging downward swing on the large interest rate cut by the Bank of Canada.
However, the Canadian dollar quickly rebounded, thanks to Macklem shifting to a less pessimistic tone in his press and perhaps some rumor selling and news buying flows.
While the Bank of Canada may continue to cut interest rates this year, there is likely to be a bigger upside to another big rate cut as the Bank of Canada shifts its focus to keeping inflation rates low.
The Canadian dollar maintained bullish momentum against “risk” currencies such as the British pound, Australian dollar and New Zealand dollar but also gave up some of its gains against the euro, the safe haven Swiss franc, the US dollar and the Japanese yen by the end of the day.