The Bank of Canada made a significant move in October 2024 by cutting its key interest rate by 50 basis points, bringing it down to 3.75%. This decision follows recent data showing a sharp drop in inflation, which fell to 1.6% in September—below the 2% target for the first time in three years. By accelerating the pace of rate cuts, the bank aims to support the economy amid signs of weakening.

Economic Indicators Show a Slowdown

The central bank highlighted several key factors that prompted the rate cut. Consumption has slowed on a per capita basis, and the labor market has softened, with unemployment rising to over 6.5%—the highest level in more than two years. These indicators suggest a cooling economy, which, combined with lower inflation, has warranted more aggressive action from the Bank of Canada to stimulate growth.

Outlook for Inflation and GDP Growth

Looking ahead, the Bank of Canada expects inflation to remain close to its 2% target as risks to inflation are balanced. In terms of economic growth, the bank forecasts a modest 1.2% GDP expansion for 2024, with stronger growth of 2.1% anticipated in 2025. These projections suggest cautious optimism for the Canadian economy as policymakers continue to monitor inflation and labor market trends.