ANALYSIS: Bank of Canada’s Big Rate Cut and What History Tells Us

The Bank of Canada’s decision to cut its key interest rate by a whopping half a percentage point is welcome news for Canadians who have struggled under higher borrowing costs and punishing inflation.
While the rate cut can be seen as a positive sign that inflation has been brought under control, earlier historical periods that saw the rate lowered by 50 basis points in response to economic turmoil could indicate other considerations as well.
Porter said that while he believes further rate cuts are likely in the months ahead, “fundamental” changes in the economy mean it’s unlikely rates will fall to extreme lows of less than 1 percent. He said such low rates, which came after the 2008 global financial crisis, were “not normal.”
“If something really extraordinary happens, like a major geopolitical shock, it’s possible. But barring some kind of huge shock like that, I don’t think we’re going to return to those extreme levels,” he said.
“I would say, if we did get hit with some kind of geopolitical crisis, then I wouldn’t be surprised if we did see some additional outsized rate cuts,” Porter said.