(Kitco News) - Gold prices in the broader currency market are showing little reaction to the Canadian dollar after the Bank of Canada cut interest rates by 50 basis points.
Following in the Federal Reserve’s footsteps, the Bank of Canada on Wednesday lowered its overnight rate to 3.75%, down from 4.25%. The Bank Rate now stands at 4.00%, and the deposit rate is at 3.75%.
Although the move is considered aggressive, it was not unexpected. Markets had priced in a 92% chance of an oversized cut after inflation dropped sharply in September.
While gold has bounced off its lows against the Canadian dollar, it remains under pressure. It was last trading at $3,788.83 an ounce, down 0.26% on the day. Gold's performance against the loonie is in line with the broader market, with spot gold last trading at $2,737.30 an ounce, down 0.40% on the day.
Looking ahead, the Bank of Canada expects interest rates to continue declining, which should support economic growth. The central bank projects GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026.
“With inflation now back around the 2% target, the Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range. If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further,” the Bank of Canada stated in its monetary policy report.
Stephen Brown, Deputy Chief North America Economist at Capital Economics, said he does not expect the Bank of Canada's aggressive easing to be a one-time event. He added that as the economy continues to weaken, the central bank will likely be forced to maintain this steep rate-cutting path.
“With little sign that economic growth is accelerating fast enough to close the output gap, and assuming further encouraging CPI data, we continue to expect another 50-basis-point cut from the Bank in December. That would bring the policy rate to 3.25% by year-end, the upper end of the Bank’s neutral range estimate of 2.25% to 3.25%. After that, we expect the Bank to revert to 25-basis-point cuts until the policy rate reaches 2.25% by mid-2025. However, the risks to that terminal rate forecast now seem skewed to the downside,” Brown said in a note
