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The Bank of Canada cut interest rates for the third time in a row on Wednesday, in a bid to boost spending and lower mortgage costs.
The central bank lowered its benchmark interest rate by a quarter of a percentage point to 4.25 per cent, in line with expectations.
While inflation remains above rate-setters’ 2 per cent target at 2.5 per cent, growth has been lacklustre for several quarters.
The unemployment rate has inched up to 6.4 per cent — nearly two percentage points higher than the record low set two summers ago.
The central bank’s decision comes against the backdrop of a pressing social and political issue: high housing costs.
Housing affordability has become a bellwether for Justin Trudeau’s Liberal government a year out from a national election.
Taylor Schleich, a rates strategist at National Bank of Canada, told the Financial Times that the rate cuts were a low-stakes tactic aimed at reducing mortgage costs for Canadian homeowners.
“I think their plan is to continue to just do 25 basis point cuts, but I’ll be curious to see what the line in the sand is for them,” Schleich said, adding that rates were so high that it was still quite “easy” for rate-setters to continue to incrementally slash them.
“Decisions start to get a bit more finely balanced probably next year,” he said.
The latest Canadian rate cut comes amid expectations that the US Federal Reserve will lower borrowing costs for the first time in four years at its September 18 vote.
Other G7 central banks, including the Bank of England and the European Central Bank have already started to cut rates amid signs that the worst bout of inflation for a generation is over.
The Bank of Canada expects inflation to fall to 2 per cent by the second half of 2025.