Canadian stocks are getting a lift after the Bank of Canada lowered its key overnight interest rate by 25-basis points to 2.50%.
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The reduction to the overnight rate, which is the interest that banks charge one another on overnight loans, was widely expected by economists and markets. For Canada’s central bank, it is the first time it has lowered interest rates since March of this year, electing to hold rates steady at its three previous policy meetings.
However, the Bank of Canada now sees a need to further lower interest rates and boost the domestic economy amid signs of a slowdown and as Canada grapples with import tariffs from the neighboring U.S. Inflation also remains benign in Canada, with the August reading coming in at an annualized 1.9%, which is below the central bank’s 2% target.
News of the latest rate cut has leading Canadian stocks such as Canada Goose (GOOS), Thomson Reuters (TRI), and Roots (TSE:ROOT) trending higher.
Governor Comments
In speaking to the media on Sept. 17, Bank of Canada Governor Tiff Macklem cited Canada’s softening labor market and slowing economy as reasons for the latest rate cut. “With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks going forward,” he said.
Canada’s economy contracted 1.5% in this year’s second quarter, raising fears that a recession is on the way. The central bank also noted in its rate cut decision that exports from Canada fell by 27% in the second quarter due to ongoing tariff volatility. There was consensus among Canada’s central bank officials to lower interest rates given rising economic uncertainty.
Is ROOT Stock a Buy?
The stock of Roots has a consensus Moderate Buy rating among two Wall Street analysts. That rating is based on one Buy and one Hold recommendations issued in the last three months. The average ROOT price target of C$4.00 implies 25% upside from current levels.
