【Text by Yushan Guanjin Studio】
On October 29 local time, the Bank of Canada announced that it would cut its benchmark interest rate by 25 basis points to 2.25%, in line with market expectations. This is the second consecutive rate cut by the Bank of Canada, aimed at addressing the negative impacts of economic weakness and trade tensions with the United States. In its statement, the central bank pointed out that economic weakness and inflation expectations close to the 2% target were the main considerations for this rate cut.
Recent economic data show that the Canadian economy contracted in the second quarter by 1.6%, mainly reflecting a decline in exports and weak business investment. Governor Tiff Macklem of the central bank admitted during a press conference: "The structural damage caused by U.S. tariffs is reducing our productive capacity and increasing costs." The U.S. trade actions have had significant impacts on several key industries, including automobiles, steel, aluminum, and lumber.
Regarding inflation, the Bank of Canada expects inflationary pressures to ease in the coming months, with the inflation rate remaining near the 2% target. This expectation provides space for the central bank to cut rates. The central bank also lowered its 2025 inflation forecast from 2.3% in January to 2.0%, while keeping its forecasts for 2026 and 2027 unchanged at 2.1%. Although the annual inflation rate rose to 2.4% in September from 2.4% in the previous month, core inflation indicators remained "moderately stable".
Notably, despite the rate cut, the Canadian dollar unexpectedly strengthened against the U.S. dollar. After the interest rate decision was announced, the USD/CAD exchange rate fell to about 1.3893, reaching its lowest level since September 25. This unusual phenomenon was due to the central bank's forward guidance accompanying the rate cut being unexpectedly strong. The central bank described the current policy rate as "roughly at the appropriate level if inflation and economic activity develop as expected," implying that this rate cut may mark the end of the easing cycle.
The central bank expects that by the end of 2026, Canada's GDP will be about 1.5% lower than its January forecast. Specifically, GDP is expected to grow by 1.2% in 2025, 1.1% in 2026, and 1.6% in 2027. The central bank emphasized that trade friction and weak external demand will continue to suppress Canadian exports and manufacturing activity.
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Original: https://www.toutiao.com/article/7566696140515607076/
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