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Bank of Canada makes significant interest rate reduction amidst rising inflation | Inflation Updates


The Bank of Canada has made the decision to slash its key policy rate by 50 basis points to 3.25 percent, in a move towards more gradual cuts in the future. Governor Tiff Macklem mentioned that potential tariffs by the incoming US President-elect Donald Trump present a major new uncertainty for the Canadian economy. This cut, although expected, is the first consecutive large reduction since the pandemic began.

Macklem stated that with the policy rate now significantly lower, the bank anticipates taking a more gradual approach to monetary policy, evaluating the need for further cuts on a case-by-case basis. Inflation is currently at the bank’s target of 2 percent, but fourth-quarter growth may be weaker than expected. Macklem also expressed concern about the economic impact of possible tariffs on Canadian exports by the new US administration.

The bank will also be considering the effects of immigration levels, a temporary sales tax rebate, and a potential government cash handout, while focusing on underlying trends to guide policy decisions. With this recent reduction, the Bank of Canada has now lowered benchmark borrowing costs five times in a row by a total of 175 basis points in just six months, making it the only major central bank to have reduced rates so rapidly.

Overall, the Bank of Canada’s decision to cut rates while expressing caution about future monetary policy reflects ongoing uncertainties in the Canadian economy, particularly in light of potential changes in US trade policies.

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Photo credit www.aljazeera.com

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