KONTAN.CO.ID - OTTAWA. The Bank of Canada on Wednesday reduced its key benchmark rate by 50 basis points to 3.75%, its first bigger-than-usual move in more than four years, and hailed signs the country had returned to an era of low inflation. The central bank, which hiked rates to a 20-year high to fight soaring prices, has now cut four times in a row since June. Inflation in September sank to 1.6%, below the 2% target. "We took a bigger step today because inflation is now back to the 2% target and we want to keep it close to the target," Governor Tiff Macklem said in his opening remarks.
Baca Juga: Gold Glitters as US Election Nerves Grow, Stocks Wilt Despite three previous cuts totaling 75 basis points, demand has been muted, sales at businesses are sluggish and consumer sentiment is tepid, hurting economic growth. "Today's interest rate decision should contribute to a pickup in demand," Macklem said, adding the BoC would like to see growth strengthen. The U.S. Federal Reserve last month started its own rate reduction cycle with a similar size move. The last time the Bank of Canada cut rates by 50 bps at a scheduled meeting was in March 2020. The headline September inflation rate of 1.6% underscored concerns that the high cost of borrowing might have suppressed the rise in prices more than the economy needed.
Baca Juga: FOREX-Euro at Three-Month Low, Yen Under Pressure Macklem, referring to recent economic data and the bank's own surveys, said "all this suggests we are back to low inflation. This is good news for Canadians". He continued: "Now our focus is to maintain low, stable inflation. We need to stick the landing". Before the announcement, money markets were fully pricing in another 25 basis point cut in the final monetary policy decision announcement of the year on Dec. 11. Macklem reiterated that if the economy continued to evolve broadly in line with forecasts, the bank would cut rates again, with the timing and pace depending on the latest data. Canada's economic growth has sputtered under the impact of high rates. July GDP grew by just 0.2% on a monthly basis and provisional data suggest August growth will likely stall. The bank revised its forecast for quarterly and annual growth in its latest monetary policy report (MPR) released along with the rates announcement on Wednesday.
Baca Juga: GLOBAL MARKETS-Gold Glitters as US Election Nerves Grow, Strong Dollar Dents Stocks It now expects annualized GDP growth in the third quarter to be 1.5%, down from the 2.8% it predicted in July, but kept its full year forecast unchanged at 1.2%. The overall annual inflation rate this year is seen at 2.5%, falling to 2.2% in 2025 and 2.0% in 2026, the MPR showed. The bank, however, is still concerned about inflation coming higher or lower than expected going forward. "The economy functions well when inflation is around 2%," Macklem said.
Editor: Yudho Winarto
