UPDATE 2 - Bank of Canada reduces policy rate by 50 basis points to 3.75%

​​​​​​​ADDS COMMENTS FROM GOVERNOR TIFF MACKLEM

By Ovunc Kutlu

ISTANBUL (AA) - The Bank of Canada announced Wednesday it reduced its policy rate by 50 basis points to 3.75%, marking the fourth rate cut in more than four years.

The target for the overnight rate was lowered to 3.75%, with the bank rate at 4.0% and the deposit rate at 3.75%.

It is the fourth rate cut by the central bank since March 2020 when it lowered the policy rate by 25 basis points in response to economic conditions caused by the coronavirus pandemic.

"The Bank continues to expect the global economy to expand at a rate of about 3% over the next two years," it said in a statement.

"In Canada, the economy grew at around 2% in the first half of the year and we expect growth of 1¾% in the second half," it added.

- 'Inflation in shelter costs remains elevated'

The Bank of Canada said inflation in advanced economies has declined in recent months, while it is currently around central banks' targets.

"Global financial conditions have eased since July, in part because of market expectations of lower policy interest rates," the statement said.

In Canada, consumption has continued to grow, but it is declining on a per person basis, according to the central bank.

CPI inflation in Canada has declined significantly from 2.7% in June to 1.6% in September.

Inflation in shelter costs remains elevated, but this has begun to ease, while excess supply in the economy has reduced inflation in prices of many goods and services, according to the bank.

While the labor market remains soft, the unemployment rate stood at 6.5% in September, it added.

The central bank said Canada's GDP growth is forecast to strengthen gradually over time, supported by lower interest rates.

The Bank of Canada forecasts GDP growth to come in at 1.2% this year, followed by 2.1% in 2025 and 2.3% in 2026.

- Focus now on maintaining low, stable inflation

Bank of Canada Governor Tiff Macklem said the made a bigger interest rate cut of 50 basis points because inflation is now back to the bank's 2% target and the Governing Council wants to keep it close to that figure.

"In the past few months, inflation has come down significantly from 2.7% in June to 1.6% in September.," he said a news conference after the conclusion of the bank's monetary policy meeting. "Recent indicators suggest it will be around 2% in October."

"Price pressures are no longer broad-based, and both our measures of core inflation are now under 2.5%," he said. "Our surveys also find that business and consumer expectations of inflation have shifted down and are nearing normal. All this suggests we are back to low inflation."

Macklem said the bank's focus is now to maintain low and stable inflation.

The Bank of Canada forecasts inflation will remain close to its target over its projection horizon, he added.

"The upward pressure from shelter and other services is expected to gradually diminish," he said. "With stronger demand, the downward pressure on inflation is also forecast to dissipate, keeping the upward and downward forces roughly balanced."

Macklem noted that if the economy evolves broadly in line with expectations, the central bank anticipates cutting rates further to support demand and keep inflation on target.