Canada’s central bank reduced its benchmark interest rate 50 basis points to 3.75%, the first such move since the early stages of the COVID-19 pandemic when a similar cut was implemented on March 27, 2020. It had stood at 4.25% before today’s announcement. Economists had been expecting a larger-than-usual reduction, particularly considering the 25-basis-point reductions that have become common in recent months.

The Bank’s move follows a turnaround in inflation back to 2 percent, its target, so it would not have had the same concerns that had fueled previous rate increases. Said Governor Tiff Macklem: “With inflation back to two percent, we want to see growth strengthen. Today’s interest rate decision should contribute to a pickup in demand.”

Macklem said some relevant economic parameters that made the bank decide its course of action. Core inflation now is within limits and house inflation, which was once contributing majorly to rising inflation, has also started taming down. Concurrently, oil prices worldwide have also reduced, which gives a promising outlook in the economy. However, he has not disclosed that Canadians are still not fully confident. Therefore, people’s spends on discretionary products are still at an all-time low due to past inflation and high-time borrowing costs.

The cut in rates saw major Canadian banks like TD, Scotiabank, BMO, CIBC, RBC, and National Bank implement their corresponding reduction in prime rates by 50 basis points cut it down from 6.45 percent to 5.95 percent. This reduction is going to give much immediate relief to those holding a variable rate mortgage; however, the significance of the cut for fixed-rate mortgages is likely to be less because they are market-driven under the bond market.

Although these are positive developments, Macklem said that perhaps most Canadians may not feel the decrease in the rates sooner. He commented that the road has been long so far regarding inflation and that many people have continued living with heavy financial burdens. Macklem yet again reiterated that the Bank is aware of an aspect from future rate cuts with modifications to current economic data.

According to the monetary economists, should economic conditions turn out as forecasted, then future rate cuts may be due; but once again, the timing and magnitude of such cuts are still dependent on incoming data. The Bank continues to remain prudent, focused on the careful, data-driven strategy for monetary policy decisions.