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The Bank of Canada cut its key overnight interest rate by 50 basis points to 3.75% in an effort to stimulate the slowing economy. This move follows three consecutive 25-basis-point cuts, driven by inflation returning to the 2% target. The Bank aims to encourage consumer and business spending, which has remained soft despite modest household and business investment growth. Rising unemployment, particularly affecting younger workers and newcomers, has further strained the economy. The central bank hopes the rate cut will lead to a pickup in demand, but economists remain skeptical about its immediate impact on economic growth.
The Bank of Canada had previously raised interest rates 10 times between 2022 and 2023 to control inflation, which peaked at 8.1% in mid-2022. Now, as inflation falls, the focus has shifted to economic recovery. The latest Monetary Policy Report projects the economy will grow by just 1.2% this year, with a rebound to 2.1% in 2025. Additional rate cuts could be considered if the economic data continues to reflect weak growth, and there is speculation that another 50-basis-point cut might occur in December 2024 to further support economic activity.
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