TORONTO – The long-awaited “robust cut” in interest rate has finally arrived: 0.50. In fact, the Bank of Canada announced today the change in the rate from 4.25% to 3.75%. The half percentage point cut is the fourth consecutive cut by the central bank, after inflation fell from 2.7% in June to 1.6% in September, but it is the first of 0.50: the previous ones were all 0.25.

“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 in a statement. The central bank expects inflation to remain around 2% in October: according to Macklem, the decline in inflation in recent months reflects the combined effects of the fall in oil prices, a decline in inflation and commodity prices housing in Canada and lower prices of various consumer goods such as cars and clothes. If the trend continues, further interest rate cuts are possible in the future. “Now, our focus is to maintain low, stable inflation” Macklem said.

Even before the rate cut was announced, federal Finance Minister and Deputy Prime Minister Chrystia Freeland made positive statements about the current economic “numbers.” “The IMF (International Monetary Fund) published today its World Economic Outlook, and in that outlook, Canada is forecast by the IMF to have the strongest economic growth in the G7 in 2025. There is a lot more we need to do. But on the macroeconomic front, we’re seeing some solid progress,” Freeland said, according to CTV.

The Bank of Canada expects the global economy to expand at a rate of about 3% over the next two years, with growth in the United States expected to be stronger than previously expected. “Household spending and business investment have picked up this year, but remain soft” Macklem said. The central bank also notes that financial conditions around the world have eased and that global oil prices are about ten dollars lower than forecast in the July monetary policy report. According to the central bank, the Canadian economy grew by about 2% in the first half of the year and is expected to grow by 1.75% in the second half of 2024.

However, the “crux” of employment remains: the central bank notes that the Canadian labor market remains weak while the unemployment rate rose to 6.5% in September, a full percentage point more on an annual basis. “Business hiring has been weak, which has particularly affected young people and newcomers to Canada” Macklem said, adding that the number of workers has increased faster than the number of jobs. However, GDP growth is expected to gradually strengthen to around 2% in 2025 and 2.25% in 2026 due to lower interest rates.

In the meantime, with the 0.50 cut in interest rate, families who have a mortgage can breathe a sigh of relief.

In the pic above, Bank of Canada Governor Tiff Macklem (photo from the Canadian central bank’s Facebook page)