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Highlights
- Canada likely to join global central banks in larger rate cuts.
- Australia remains an outlier as others slash rates.
- European and Swiss central banks also hint at more aggressive moves.
This week, the Bank of Canada is expected to implement a significant interest rate cut, following in the footsteps of the US Federal Reserve and the Reserve Bank of New Zealand. A reduction of 50 basis points is anticipated as Canada faces slow economic growth, increasing unemployment, and inflation that has dropped below the central bank's 2% target.
The potential cut would bring Canada’s key policy rate down to 3.75%, marking its first larger-than-usual move since June. While Canada’s labour market is loosening and consumer credit distress is rising, the BoC is aiming to address the economic slowdown through this aggressive monetary action. Governor Tiff Macklem has previously warned about the risks of inflation falling too low, but the current economic conditions may push the central bank to take more substantial measures.
On the global stage, other central banks are also leaning toward jumbo rate cuts. The European Central Bank has already made several reductions this year and could increase the pace of cuts if upcoming manufacturing data indicates further economic weakness. Market expectations are showing a possibility of a 0.5% rate cut at the ECB’s meeting in December, with further rate cuts not ruled out. The euro area composite Purchasing Managers' Index has recently dropped below 50, raising concerns about growth in the region.
In Switzerland, the Swiss National Bank is also likely to follow this trend, as inflation has softened significantly. With the Swiss franc remaining strong against the euro, the SNB could reduce its policy rate further, with market expectations pointing to a potential cut to 0.5% by early next year.
Meanwhile, Australia stands out among major central banks. Despite calls for larger cuts, the Reserve Bank of Australia has maintained its current stance due to persistent inflation and strong labour market data. This has led to traders adjusting their rate cut expectations, with the first reduction not expected until next year.
As central banks around the world react to slowing growth and inflation trends, Canada and Europe appear poised to make significant monetary moves in the coming weeks.
