Bank of Canada cuts rates again as inflation and labor market cool – Canadian stocks rally and Canadian dollar strengthens – Bombardier (OTC:BDRBF), Bausch Health Companies (NYSE:BHC)

He Bank of Canada (BoC) cut its key policy rate by 25 basis points to 4.25% on Wednesday, marking the third consecutive rate cut since June.

The move was widely expected by market participants as inflation and the labor market continued to show signs of slowing.

The Canadian economy grew by 2.1% in the second quarter, driven by government spending and business investment. However, the labour market continues to slow and employment has changed little in recent months. However, wage growth remains high relative to productivity.

During a press conference, the Governor Tiff Macklem suggested that more rate cuts could be on the horizon if inflation continues to decline as expected.

“If inflation continues to decline broadly, as we forecast in July, it is reasonable to expect further cuts in our policy rate,” Macklem said.

Inflation cooled to 2.5% in July, in line with the Bank of Canada's target range. Core inflation indicators also averaged around 2.5%, but the central bank noted that high house price inflation remains the largest contributor to headline inflation. Housing costs are finally starting to ease.

Market reactions

Canadian markets reacted positively on Wednesday following the Bank of Canada's decision to cut interest rates. Investors were optimistic, which boosted stocks and bonds.

Canadian 10-year Treasury bond yields fell 5 basis points to 3.2%, reflecting increased demand for government debt. The Canadian dollar, or loonie, rose 0.3% to levels of 1.35 against the dollar.

Canadian stocks rallied, with the iShares MSCI Canada ETF EEC increasing by 0.6%, while the Franklin FTSE Canada ETF FLCA Gained 0.7%.

Wednesday's top gainers in Canadian stocks:

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