Bank of Canada Cuts Key Interest Rate to 3.25%

OTTAWA–To alleviate slowing economic growth and a weakening labor market, the Bank of Canada has reduced its key interest rate by half a point. The adjustment announced on Wednesday lowered the overnight rate target from the previous 3.75% to 3.25%. This decision marks the second consecutive half-point cut and the fifth successive decrease in the benchmark interest rate, which was at 5% at the beginning of 2024.

Governor Tiff Macklem stated in a press conference on Wednesday morning that the central bank has lowered borrowing costs by a total of 1.75 percentage points since June. Macklem emphasized that the full effects of these cuts on the economy have not yet materialized. He also remarked, "If the economy develops as expected, we anticipate a more gradual approach to monetary policy. Our decisions will be shaped by incoming information and our assessment of its impact on the inflation outlook."

The Bank of Canada's policy change also includes a shift in its forward guidance. Unlike previous statements, the central bank refrained from signaling further rate cuts, indicating a turning point in its strategy for future rate decisions. This latest rate cut is unique as it represents the first instance of consecutive half-point reductions by the central bank outside of extraordinary events such as recession, the COVID-19 pandemic, the 2008-2009 financial crisis, and the September 11, 2001 terrorist attacks.