The Bank of Canada's governing council worried that the 50-basis-point rate cut would spark concern about the health of the Canadian economy, deliberations show.
The Bank of Canada delivered an oversized interest rate cut of half a percentage point on Wednesday, focusing now on boosting the Canadian economy amid signs inflation is well under control. The central bank’s policy rate now stands at 3.75 per cent. Wednesday’s decision is the fourth consecutive drop in interest rates since June and is the Bank of Canada’s largest rate cut since the global financial crisis in 2009, outside the COVID-19 pandemic.
“Since a 50-basis-point cut is unusual, some members expressed concern that it might be interpreted as a sign of economic trouble, leading to expectations of further moves of this size or to assumptions that the policy interest rate would need to become very accommodative in the future,” the deliberations read.The Bank of Canada’s policy rate broadly sets the cost of borrowing in Canada.
Officials sought to clarify. however, that Canadians and market watchers should not necessarily expect half-point cuts at every meeting going forward, emphasizing in their communications that future decisions would be taken “one meeting at a time, guided by incoming data.” The Bank of Canada’s final rate decision of the year is set for Dec. 11, with another cut widely expected.
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