As some experts predicted, the Bank of Canada (BoC) has cut the overnight interest rate for the second consecutive time.
In their scheduled announcement on Wednesday, October 29th, the BoC has reduced the overnight lending rate by 25 basis points, from 2.5% to 2.25%.
This rate is sometimes also referred to as the policy interest rate, key interest rate or target rate, and acts as the benchmark cost of borrowing set by the central bank.
The update influences the interest rate that lenders use for variable loans, lines of credit and mortgages, meaning that potential homebuyers may get a cheaper loan if this rate is lower.
Since April 2024, this rate has been slowly cut by the BoC from 4.75%, to the 2.25% it is today.
BoC says that the decision to cut this rate was made for many economic reasons, but mainly it was cut to help stabilize the economy and the rate of inflation for consumers.
Additionally, the BoC says that the effects of historic US tariffs on inflation have become somewhat clearer, allowing their economists to provide a better projection of the global economy and Canada’s place in it.
However, they stipulate that because US trade policy remains unpredictable the BoC’s projection is subject to a wider-than-usual range of risks.
“While the global economy has been resilient to the historic rise in US tariffs, the impact is becoming more evident,” said the BoC in their interest rate announcement.
“Trade relationships are being reconfigured and ongoing trade tensions are dampening investment in many countries.”
In the United States, the BoC has determined that economic activity has been strong, but employment growth has slowed and tariffs have started to push up consumer prices.
In Europe, growth is decelerating due to weaker exports and slowing domestic demand.
Meanwhile, in China, the BoC says that lower exports to the US have been offset by higher exports to other countries, but business investment has weakened.
Overall, their economists state that global financial conditions have eased since July and oil prices have remained fairly stable.
Since the onset of the US tariffs, the Canadian dollar has depreciated only slightly against the US dollar.
BoC has scheduled the next announcement for the overnight rate on December 10th.
