UPDATE - Bank of Canada reduces policy rate by 25 basis points to 4.25%

UPDATES WITH MORE INFO

By Ovunc Kutlu

ISTANBUL (AA) - The Bank of Canada announced Wednesday it reduced its policy rate by 25 basis points to 4.25%, marking the third rate cut in more than four years.

The target for the overnight rate was lowered to 4.25%, with the bank rate at 4.5% and the deposit rate at 4.25%.

The move is the third 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 global economy expanded by about 2.5% in the second quarter," the bank said in a statement. "In Canada, the economy grew by 2.1% in the second quarter, led by government spending and business investment.

"This was slightly stronger than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July," it added. "The labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity."

The Bank of Canada said inflation in the country slowed further to 2.5% in July, adding that its preferred measures of core inflation averaged around 2.5% and the share of components of the consumer price index growing above 3% is roughly at its historical norm.

The central bank said high shelter price inflation is still the biggest contributor to total inflation, but it is starting to slow, noting that inflation also remains elevated in some other services.

"Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up," said the statement.

The bank said economic growth in the US was stronger than expected, led by consumption, but the labor market has slowed.

Euro-area growth has been boosted by tourism and other services, while manufacturing has been soft, it added.

China's weak domestic demand weighed on its economic growth, it noted.

The Bank of Canada said its Governing Council is carefully assessing forces on inflation, and monetary policy decisions will be guided by incoming macroeconomic information and its assessment of their implications for the inflation outlook.