Stalled trade talks hang over central bank's penultimate interest rate decision of the year
The Bank of Canada (BoC) has elected to cut its policy interest rate by 25 basis points from 2.50 per cent to 2.25 per cent. This is the second quarter-point cut in as many decisions, following a period of maintenance through the spring and summer.
The decision comes despite a slight uptick in inflation for September, which came in at 2.4 per cent, higher than the 2.2 per cent that economists had predicted. Employment in September also surprised to the upside, with the Canadian economy adding 60,400 jobs, but the unemployment rate stayed at 7.1 per cent.
Even if inflation is a risk and unemployment hasn't deteriorated further, the overhang of trade tensions with the United States and gloomy business and consumer sentiment appears to have weighed on the BoC's decision.
"With ongoing weakness in the economy and inflation expected to remain close to the 2% target, Governing Council decided to cut the policy rate by 25 basis points," a press release announcing the decision reads. "If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. If the outlook changes, we are prepared to respond."
The decision also comes with the Bank's first monetary policy report since July. That report was intentionally broad in its various outlooks given the unsettled nature of Canada-US trade relations.
"With the effects of US trade actions on economic growth and inflation somewhat clearer, the Bank has returned to its usual practice of providing a projection for the global and Canadian economies in this Monetary Policy Report (MPR)," the announcement reads. "Because US trade policy remains unpredictable and uncertainty is still higher than normal, this projection is subject to a wider-than-usual range of risks."
