Canadian households are celebrating cheaper credit after rates were further slashed. This morning the Bank of Canada (BoC) made its October rate announcement, slashing the overnight rate by 0.5 points in a single move. The “supersized” cut was widely expected by the market, but reinforces a troubling picture the central bank’s accompanying report confirmed. Canada’s economy is slowing so fast that the normally very controlled central bank is openly demonstrating panic, accelerating its easing cycle at a pace not seen outside of recession.
Bank of Canada Makes “Supersized” Double Cut To Interest Rates
The BoC made the decision to adopt a supersized rate cut, double the typical pace. This morning the BoC overnight rate fell to 3.75% after the central bank slashed 50 basis points (bps) in a single month. Despite being widely expected and priced in by the market, this was an unusually large one—double the size of a standard cut. The central bank confirmed what many suspected—the cuts are accelerating due to a weak economy.
The risk of excessive inflation is now turning into the risk of deflation, according to the BoC. CPI fell to 1.6% in the latest report, below the 2.0% target rate they maintain. They attribute this to weak demand, creating excess supply. It’s like the country is going from a shortage to oversupply almost as fast as interest rates fell and climbed.
Bank of Canada Fears Economy Is Underperforming The World, Population Slowdown
Behind the fear of central bankers is Canada’s underperformance against global peers. The BoC is forecasting real GDP growth will be just 1.2% in 2024, nearly a third of the 3.0% global average currently forecast. Adding fuel to that fire is a slowing population, with annual growth forecast to drop 0.25 points to 2.75% between the first and second half of the year.
For context, Canada’s population growing at 2.75% per year is still massive growth. It’s just not what many had anticipated, and the decline comes before many of the policies designed to throttle growth even further in the coming months.
Supersized rate cuts are good news for those managing debt, but also a sign of economic panic. The central bank’s research shows it takes between 18 and 24 months for the market to reflect rate decisions fully. The current easing cycle has seen the BoC make the equivalent of 5 rate cuts in less than 6 months. They’re even reversing some of the tightening done less than 24 months ago, indicating that many of those hikes were unnecessarily punitive.
The BoC is sending a clear message—they’re in panic mode over the economy. There’s no time to raise one hike at a time; the BoC doubled the pace of rate cuts, a move typically not seen outside of a recession. Cheap credit is great, but the context in which it’s being delivered is more worrying than people realize.
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