The latest on Bank of Canada's Oct. 23 interest rate decision
The Bank of Canada's governing council lowered the benchmark interest rate to 3.75 per cent from 4.25 per cent. This is the fourth consecutive cut since June and follows three quarter-point moves.
The bank’s new forecast, also published this morning, sees economic growth picking up through the last quarter of the year and into next year.
Further reading:
- A recent history of Bank of Canada’s interest rate decisions
- How a Bank of Canada rate cut will affect mortgages and other debt payments
Find updates from our reporters and columnists below.
12 p.m.
What’s next?
Bank of Canada Governor Tiff Macklem takes part in a news conference, after cutting key interest rate, in Ottawa on October 23, 2024.Blair Gable/Reuters
- The Bank of Canada’s next interest rate announcement is on Dec. 11. As it stands, financial markets expect the bank to deliver a quarter-point cut, which would bring the policy rate to 3.5 per cent.
- Between now and early December, there will be a number of important data releases from Statistics Canada. August GDP numbers are out on Oct. 31, the October employment numbers will be released on Nov. 9 and October inflation numbers will be released on Nov. 19.
- Governor Tiff Macklem will speak to reporters on Friday on the sidelines of the International Monetary Fund meeting in Washington.
- The U.S. Federal Reserve’s next interest-rate decision is on Nov. 7. After starting its easing cycle with a half-point cut last month, the Fed is expected to move to a smaller quarter-point cut at the next meeting.
11:35 a.m.
Economists react to today’s Bank of Canada rate cut
Here’s how economists are reacting to today’s decision in written commentaries. They were issued prior to the press conference:
Royce Mendes, managing director and head of macro strategy, Desjardins Securities
“The tone of the suite of communications sounded just dovish enough to justify the aggressive action. … Policymakers didn’t seem eager to signal another 50 basis point move in December. While the official statement reiterated that rates are likely to fall further, it once again warned that the timing and pace of further reductions are uncertain. We don’t yet see the necessary ingredients for a follow-up jumbo-sized cut. With the level of rates starting from a now lower level and the American economy on stronger footing, the Bank of Canada might want to return to 25 basis point moves as it assesses the impact of recent monetary easing. Keep in mind that new mortgage rules, meant to stimulate the struggling housing market, are also set to be implemented in mid-December, potentially adding to the reasons for a touch more caution."
James Orlando, director and senior economist, TD Economics
“Now that headline CPI inflation has dropped below the 2% target, the BoC has gained confidence that it can cut rates at a quicker pace. While there isn’t much in the way of a changing economic narrative - slow GDP growth and core inflation above 2% remain - the central bank is set on doing what it can to boost economic growth. Will a 50 bp move achieve this? Probably not, but the central bank felt it should do something with economic data continuing to show that the country is stuck in a rut. Hopefully we get a bit more clarity on this in the press conference.
This won’t be the end of rate cuts. Even with the succession of policy cuts since June, rates are still way too high given the state of the economy. To bring rates into better balance, we have another 150 bps in cuts pencilled in through 2025. So while the pace of cuts going forward is now highly uncertain, the direction for rates is firmly downwards."
Tu Nguyen, economist with assurance, tax & consultancy firm RSM Canada
“The size of the December rate cut will depend on upcoming job and inflation data, but a 25 basis point cut remains our baseline. With the U.S. economy outperforming expectations, it is unlikely that the Fed will continue with larger cuts. And as much as the Bank is independent from the Fed, deviating too far from the Fed risks causing the loonie to lose even more value.
We expect the policy rate to fall to 3.5% by the end of 2024 and return to a terminal rate of 2.75% by early 2025."
Stephen Brown, deputy chief North America economist, Capital Economics
“The weak economic backdrop means there is a strong case for the Bank of Canada to follow its larger 50bp cut today, which took the policy rate to 3.75%, with another 50bp move at the next meeting in December.
The Bank does not seem confident that growth is on the cusp of accelerating strongly. The new Monetary Policy Report shows that the Bank now shares our view that third-quarter GDP growth was below the economy’s potential, at 1.5%, and the Bank now expects only a modest pick-up to 2.0% in the fourth quarter, which would be in line with potential at best. As a result, the economy will remain in a position of excess supply well into 2025, which will continue to put downward pressure on inflation.”
Taylor Schleich, Warren Lovely & Jocelyn Paquet, economists with National Bank Financial
“It’s the right move in our view as it would have been difficult to justify continuing with the gradual approach (i.e., 25 bp cuts) in light of a softer inflation and growth backdrop. Rather than the output gap starting to close in Q3 like the BoC had previously expected, slack absorption will have to wait at least until the fourth quarter. While that is the baseline outlook for the Bank, we feel we’re in for a repeat of the past three months, where growth continues to undershoot the BoC’s optimistic expectations. And to be clear, their updated economic projections do look very optimistic to us. Should our outlook for a continued sluggish economy materialize, a follow-on 50 basis point rate cut in December should be viewed as the base case outlook. And even if growth were to pick up in line with the Bank’s projections, another large move can’t be dismissed given the amount of slack that has already been accumulated. Indeed, we continue to argue that restrictive monetary policy is no longer warranted in Canada and policymakers should quickly return to a more neutral policy stance. Note that official BoC estimates peg the neutral rate as being between 2.25% and 3.25%. A 50 bp cut in December would bring the overnight target to the upper end of that range."
Read more on how markets and economists are reacting to today’s Bank of Canada decision.
11:13 a.m.
Macklem on keeping inflation close to 2-per-cent target
“We’re committed to keeping inflation close to the 2-per-cent target, and we’re going to use our interest rate to deliver on that. And with inflation staying close to 2 per cent, Canadians don’t have to worry about big changes in their cost of living. Yes, they’ve got lots of other things to worry about. This is one less thing to worry about.”
11:10 a.m.
Macklem on inflation
“Inflation has come down a little faster than we expected. But if you look at our forecasts over really the last year, things have evolved broadly in line with what we expected. We are pleased to see that inflation has come back a little quicker. Reflecting that, we’ve taken a 50-basis-point cut today that would help bring demand and supply back into balance in the economy.”
11:05 a.m.
Senior deputy governor Carolyn Rogers on housing
“In our forecast, we do have a pick-up in housing. It is possible that the combination of lower interest rates and changes in mortgage rules could mean that that pick-up happens sooner or faster or stronger than we expect. It’s also possible people will look at the direction of interest rates and sort of stay on the sidelines a bit longer and wait for rates to come down more, and we don’t see that pick-up happen as fast or as strong as we’re anticipating.”
10:50 a.m.
Macklem on internal discussions about the half-point cut
Tiff Macklem at the press conference, on the internal discussion about the size of today’s decision:
“There was a clear consensus that it was appropriate to take a larger step today, cut 50 basis points.”
10:45 a.m.
How the rate cut impacts mortgage rates and the housing market
Analysts don’t expect the Bank of Canada’s oversized rate cut to have a noticeable impact on fixed mortgage rates just yet.DARRYL DYCK/The Canadian Press
Analysts don’t expect the Bank of Canada’s oversized rate cut to have a noticeable impact on fixed mortgage rates, and in turn don’t expect the housing market to be jolted quite yet.
Five-year and three-year mortgage rates tend to closely follow bond markets, and BMO senior economist Robert Kavcic said the bond market barely reacted to Wednesday morning’s 50 bps cut.
Rates for five-year mortgages have been hovering above the 4 per cent mark in recent weeks. While the BoC could drop its headline rate by another two percentage points by mid-2025, Mr. Kavcic says five-year fixed mortgage rates are only expected to drop by less than half a percentage point because of the bond market having priced in future cuts by Canada’s central bank.
“We expect a steady stream of 25 bp rate cuts to continue through next spring, and we should see mortgage rates break below 4% in the months ahead,” said Mr. Kavcic in an e-mail.
Meanwhile, the 50 bps cut will provide some relief to variable rate mortgage holders, but Nerdwallet mortgage and real estate specialist Clay Jarvis said in a release that it won’t be enough for the market to “roar back to life.”
The mortgage stress test means that many buyers won’t be able to qualify for a variable mortgage rate until another couple rate drops, he said.
The bottom line is that neither fixed or variable mortgage rates are low enough yet for buyers to begin piling back into Canada’s housing market.
10:35 a.m.
Key quotes from Tiff Macklem’s press conference opening statement
Why the central bank went big: “We took a bigger step today because inflation is now back to the 2-per-cent target and we want to keep it close to the target.”
What’s happening to inflation: “In the past few months, inflation has come down significantly from 2.7 per cent in June to 1.6 per cent in September. Recent indicators suggest it will be around 2 per cent in October. Price pressures are no longer broad-based, and both our measures of core inflation are now under 2.25 per cent. Our surveys also find that business and consumer expectations of inflation have shifted down and are nearing normal. All this suggests we are back to low inflation.”
What the bank expects for inflation: “The Bank forecasts inflation will remain close to the target over the projection horizon. The upward pressure from shelter and other services is expected to gradually diminish. With stronger demand, the downward pressure on inflation is also forecast to dissipate, keeping the upward and downward forces roughly balanced.”
More rate cuts are expected: “If the economy evolves broadly in line with this forecast, we anticipate cutting our policy rate further to support demand and keep inflation on target. The timing and pace of further interest rate cuts will depend on incoming information and our assessment of its implications for the inflation outlook. We will take out monetary policy decisions one at a time.”
Upside and downside risks to inflation: “The biggest downside risk to inflation is that it could take longer than anticipated for household spending and business investment to pick up. Our recent surveys suggest businesses expect subdued sales and their hiring and investment plans are modest. On the upside, lower interest rates could fuel a stronger rebound in housing activity or wage growth could remain high relative to productivity. There is also elevated geopolitical uncertainty and the risk of new shocks.”
Risks are balanced: “Overall, we view the risks around our inflation forecast as reasonably balanced. With inflation back to 2 per cent, we are now equally concerned about inflation coming in higher and lower than expected.”
10:30 a.m.
Notable changes to the BoC’s inflation projections
Here are some notable changes to the Bank of Canada’s inflation projections.
CPI will average 2.5 per cent this year (down from 2.6 per cent in the July forecast) and 2.2 per cent in 2025 (down from 2.5 per cent).
In the fourth quarter of 2024, inflation will average 2.1 per cent, down from 2.4 per cent in the July forecast.
10:28 a.m.
Analysis: Bank of Canada’s resounding message? The inflation fight is over
The inflation fight is over. That’s one of the resounding messages from the Bank of Canada on Wednesday, and a big reason why the central bank is quickening the pace of rate cuts.
With consumer prices, things have changed in a hurry. Back in late July, the Bank of Canada was projecting a sustainable return to the 2-per-cent inflation target in the second half of 2025.
We reached that mark about a year ahead of schedule. The Consumer Price Index rose at an annual rate of 2 per cent in August, then dipped to 1.6 per cent in September, largely because of weaker gas prices.
There will be some fluctuation in the coming months. In Bank of Canada Governor Tiff Macklem’s opening statement for Wednesday’s decision, he said that inflation could perk up to 2 per cent in October.
Even so, recent indicators suggest “we are back to low inflation,” Mr. Macklem said. And the central bank expects inflation to remain close to target over the coming years.
Broadly speaking, this is cause for celebration. Canadians experienced the worst inflation in four decades – the annual rate hit 8.1 per cent in June, 2022 – forcing the central bank to jack up borrowing rates. Inflation is back to “normal” and rates are heading there, too.
As ever, it’s necessary to state the caveat: Consumer prices are generally much higher today than a few years ago, but at least the increases are getting smaller.
The inflation picture has improved for many reasons. Energy prices have tumbled in recent months. Shelter price increases are weakening. And Canada’s rate-sensitive consumers are buying less, which is forcing companies to discount their goods.
On the downside, it’s worth asking hard questions about why the Bank of Canada’s inflation forecast was so inaccurate. These aren’t trifle matters. If the central bank doesn’t have a solid view of where inflation is heading, it can lead to policy error. The risk, in this case, is that interest rates are much higher than they need to be, thus inflicting more pain than necessary on consumers and businesses.
10:20 a.m.
How markets are reacting after today’s BoC rate cut
Today’s decision and the immediate Bank of Canada commentary that accompanied it didn’t take markets by much surprise.
The Canada two-year bond yield, which is particularly sensitive to changes in the Bank of Canada overnight rate and its outlook, fell a couple basis points on the news, but remains hovering just above 3 per cent.
The Canadian dollar ticked slightly lower and is retesting its lowest levels of the trading day against the greenback. At last check, it was trading at 72.18 cents US. That’s still comfortably above key support at about 72 cents US, a level it has been trading above ever since the initial 2020 pandemic shock to markets. A break below 72 cents US is key to watch.
Now the big debate turns to whether the Bank of Canada will do another 50-basis-point cut at its next meeting on Dec. 11, or stick to a more traditional 25-basis-point reduction.
Money markets are putting about 94 per cent odds, as of 10 a.m. this morning, of it being a 25-basis-point cut come December. But note that market pricing can change quickly and this comes before the press conference later this morning. Trading in swaps markets, which reflect expectations for interest rates, still suggests the overnight rate will reach close to 2.5 per cent by the end of next year.
10:12 a.m.
How common are oversized rate cuts?
Oversized rate cuts aren’t especially rare, although they typically happen during emergencies, not as part of a regular easing cycle.
The Bank of Canada delivered three half-point cuts in a matter of weeks in response to the outbreak of COVID-19 in March, 2020. It also cut interest rates by more than a quarter-point six times in 2008 and 2009 as part of an aggressive easing cycle that brought the policy rate from 4.5 per cent to 0.25 per cent to deal with the global financial crisis.
When the Bank of Canada isn’t grappling with a crisis, it tends to move interest rates up and down in smaller quarter-point increments.
9:45 a.m.
Bank of Canada cuts key interest rate to 3.75%
The Bank of Canada cut its policy interest rate by half a percentage point and revised its inflation forecast lower, accelerating the pace of monetary policy easing in an attempt to engineer a soft landing for the economy.
As widely expected, the bank’s governing council lowered the benchmark interest rate to 3.75 per cent from 4.25 per cent on Wednesday morning. This is the fourth consecutive cut since June and follows three quarter-point moves.
“We took a bigger step today because inflation is now back to the 2-per-cent target and we want to keep it close to the target,” Bank of Canada Governor Tiff Macklem said, according to the prepared text of his press conference opening statement. “We need to stick the landing.”
Mr. Macklem said the bank expects to continue lowering interest rates, although he said the pace of cuts will depend on incoming economic data. Financial markets expect the policy rate to fall to around 2.5 per cent by the end of next year.
The larger-than-usual rate cut follows a string of data showing that Canadian inflation is lower and economic growth is weaker than the bank expected. With price pressures essentially under control, the bank is trying to get borrowing costs back to a neutral level relatively quickly to avoid an unnecessary recession or further weakening in the job market.
Mr. Macklem and his team are wary that the rate of inflation could get stuck below the 2-per-cent target if economic growth does not pick up steam.
“We are now equally concerned about inflation coming in higher and lower than expected,” he said.
Read the full story on today’s BoC rate announcement.
9 a.m.
BoC-Fed divergence could weaken Canadian dollar
The Canadian dollar has already weakened against the U.S. currency over the past month. If the Bank of Canada delivers a half-point cut and a dovish message today, the Canadian dollar could weaken further.JONATHAN HAYWARD/The Canadian Press
In recent weeks, it’s become increasingly clear that the Bank of Canada and the U.S. Federal Reserve will diverge further on interest rates. Most economic data have come in weaker-than-expected in Canada, increasing the odds of larger rate cuts going forward. The opposite is true in the United States.
This has implications for the Canadian dollar, given that exchange rates are influenced by relative interest rate levels between countries. The Canadian dollar has already weakened against the U.S. currency over the past month: One U.S. dollar will get you $1.38 Canadian today, up from $1.34 in late September. If the Bank of Canada delivers a half-point cut and a dovish message today, the Canadian dollar could weaken further.
Governor Tiff Macklem has said there’s a limit to how far the BoC and the Fed can diverge; a weaker Canadian dollar can push up the cost of imported goods and add to inflation. But Mr. Macklem has also said that the BoC isn’t close to reaching that limit.
Sarah Ying, head of foreign exchange strategy at CIBC Capital Markets said in an interview last week that the central bank is unlikely going to be constrained by exchange rate concerns. Even if USD-CAD were to hit $1.42, it would only add around 0.2 percentage points to core inflation, Ms. Ying said.
“The currency will move, but it’s not going to move by a cataclysmic amount,” she said. “And even in the most hawkish case for the Fed, or the most extreme BoC-Fed divergence, we still don’t add much to core inflation.”
8:15 a.m.
Markets are all-in on big BoC move
A half-point rate cut is almost a slam dunk, according to financial market pricing. Interest rate swap markets, which capture investor expectations about monetary policy, put the odds of a 50-basis-point move at around 90 per cent on Tuesday, according to LSEG data. (A basis- point is 1/100th of a percentage point).
A few weeks ago, investors thought the choice between a 25bp and 50bp cut was a coin-toss. A lower-than-expected inflation rate in September and downbeat consumer and business surveys have swung investors wholly toward expecting the larger move.
Analysts are somewhat more divided. Nineteen out of 29 economists polled by Reuters last week were expecting a 50bp cut, with the rest betting on 25bp. Five of Canada’s six large banks are in the 50bp camp, with Toronto-Dominion Bank as the only outlier expecting a smaller cut.
Looking further ahead, swap markets see another quarter-point cut in December and more cuts next year. Markets expect the policy rate to be at 2.5 per cent at the end of 2025.
7 a.m.
Bank of Canada expected to accelerate easing
Governor of the Bank of Canada Tiff Macklem participates in a news conference on the bank's interest rate announcement, in Ottawa, Sept. 4, 2024. Analysts and investors have coalesced around the idea that the bank will lower its policy interest rate by half a percentage point to 3.75 per cent on Oct. 23.Justin Tang/The Canadian Press
The Bank of Canada has been lowering interest rates gradually since June, delivering three back-to-back quarter-point rate cuts. That could change this morning.
Financial markets and Bay Street analysts widely expect the central bank to announce a half-point cut at 9:45 a.m. ET. That would bring the policy rate to 3.75 per cent and accelerate the bank’s push to get borrowing costs back down to a normal level after one of the biggest run-ups in interest rates on record.
Rate cuts are never a sure thing. But the case for bringing borrowing costs down quickly is building.
The annual rate of inflation hit the central bank’s 2-per-cent target in August for the first time since 2021, then fell to 1.6 per cent in September. Not only is inflation no longer a menace, monetary policy makers are growing concerned that it could get stuck below the 2-per-cent target if the economy doesn’t start picking up steam.
GDP growth has undershot the Bank of Canada’s forecast in the third-quarter, unemployment is up sharply over the past two years and consumers and businesses remain downbeat. All this suggests that the current level of interest rates – which are at least a percentage point above what the bank considers to be neutral – are far too restrictive for this point in the economic cycle.
There are risks to cutting interest rates too quickly. Housing prices could take off again, especially in light of changes to federal mortgage rules that come into force in December. And more aggressive easing by the Bank of Canada relative to the U.S. Federal Reserve could weaken the Canadian dollar.
Alongside its rate announcement, the central bank will release an updated forecast for inflation and GDP growth. Governor Tiff Macklem and senior deputy governor Carolyn Rogers will hold a press conference at 10:30 a.m.
Read more about today’s Bank of Canada announcement.