(Kitco News) - Spot gold sold off in CAD while strengthening in USD after the Bank of Canada (BoC) cut its key interest rate by 50 basis points, lowering rates for the fifth consecutive meeting.
The Bank of Canada lowered its target for the overnight rate to 3.25% on Wednesday, with the Bank Rate at 3.75% and the deposit rate at 3.25%.
“Monetary policy has worked to bring inflation back to the 2% target,” said BoC Governor Tiff Macklem in the monetary policy statement. “Our policy focus now is to keep inflation close to target.”
Macklem outlined what the BoC is seeing in the economy and how it played into their decision to deliver a half-percentage-point cut.
“Canada’s economy grew by 1% in the third quarter, which was slower than we expected,” he said. “Recent data also suggest growth will be lower than projected in the final quarter of this year. Growth in the third quarter was pulled down by business investment, inventories and exports. But consumer spending and housing activity both picked up, as lower interest rates started to boost household spending.”
Macklem said that Canada’s job market continues to soften. “Businesses have continued hiring, but the number of people looking for work has been increasing faster than the number of jobs,” he said. “The unemployment rate rose to 6.8% in November. It has been especially hard for young people and newcomers to Canada to find work.”
“CPI inflation has been about 2% since the summer, and we expect it to be close to target, on average, over the next couple of years,” he said. “We will be looking at measures of core inflation to help us assess the trend in CPI inflation.”
“While the upward and downward pressures on prices have been moderating, risks to the inflation outlook remain,” Macklem added. “Elevated wage increases combined with weak productivity could push inflation up. Or the economy could keep growing below its potential, which would pull inflation down.”
The BoC governor added that the possibility of new tariffs on Canadian exports to the United States has made the economic outlook more unclear. “No one knows how this will play out in the months ahead—whether tariffs will be imposed, whether exemptions get agreed, or whether retaliatory measures will be put in place,” he said. “This is a major new uncertainty.”
Macklem said that going forward, the Bank of Canada “will be evaluating the need for further reductions in the policy rate one decision at a time.”
The expected rate cut coincided with a sharp selloff in XAU/CAD in the minutes following the rate announcement on Wednesday morning, though the yellow metal rallied to session highs in USD. Spot gold last traded at CAD$3,823.01 an ounce, up 0.06% on the day, while it last traded at USD$2,706.94 for a gain of 0.48% on the session.
