The Bank of Canada lowered its policy interest rate the target for overnight lending rates by another large-size 50 basis points to 3.25%, as widely expected, to guide the economy toward soft-landing while seeking to stabilize inflation now around its 2% target. But Governor Tiff Macklem stressed that a series of rate cuts that the bank has delivered in the past six months are"substantial" and that he and other policymakers at the bank will take a"more gradual" approach toward lowering interest rates further.

"With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range," the bank said in a statement."Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time," the bank said."Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook."

The bank also decided to continue its policy of quantitative tightening to trim the bank's balance sheet to a normal level. The process is likely to end sometime next year when the bank will resume normal purchases of government bonds.

Wednesday's move follows a 50-basis point cut in October and three 25-basis point cuts since June when the bank began unwinding the effects of its past aggressive tightening, delivering a total of 175 basis points (1.75 percentage points) in credit easing. Canada also faces"a major new uncertainty," the BoC said. U.S. President-elect Donald Trump has threatened to impose a 25% tariff on all goods from Mexico and Canada, and an additional 10% tariff on imports from China, all part of his drive to crack down on illegal drugs and immigration.

The bank acted to slash the key rate used to set borrowing costs for households and businesses in the last two rate decisions"because monetary policy no longer needs to be clearly in restrictive territory," Macklem told news conference."We want to see growth pick up to absorb the unused capacity in the economy and keep inflation close to 2%," he said.

Looking ahead,"with the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected," Macklem said, suggesting upcoming rate cuts will be by 25 basis points at a time, instead of an over-sized 50-point slash. Asked to elaborate on a"more gradual" approach, the governor told reporters that it would be"more gradual" than the two consecutive 50-basis point cuts that the bank has just conducted."That is obviously a pretty wide zone," he said."That's deliberate. We are going to take our decisions one meeting a time based on the best available information and our assessment of implications from our monetary policy."

Markets have been split on whether the governing council will deliver a routine 25 basis point cut or a more aggressive 50 basis points. After mostly disappointing data, including the latest rise in unemployment, the Econoday consensus looks for 50.

Canada's central bank, the Bank of Canada (BoC), announces its monetary policy with regard to interest rates eight times a year. The announcement conveys to the financial markets and investors what, if any, changes in policy might be. The main focus is the target set for the overnight rate. Policy is framed around keeping the annual rate of inflation as measured by the consumer price index (CPI) within a 1 percent to 3 percent range and close to the 2 percent midpoint over the longer-run. To this end, the BoC also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.

Bank of Canada determines interest rate policy at eight meetings during the year and they are an influential event for the markets. Prior to each meeting, market participants speculate about the possibility of an interest rate change. A post-meeting statement is issued after each meeting. Unlike the Federal Reserve, there are no post-meeting minutes. The Bank has an inflation target range of 1 percent to 3 percent with specific focus on the 2 percent midpoint.

Although the Bank monitors many economic indicators, as indeed all central banks do, the Bank converted its inflation barometer for operational purposes to a consumer price index measure that subtracts eight volatile components to better reflect core inflation. It also takes the foreign exchange rate for the Canadian dollar into its monetary policy decisions.

Monetary policy goals are to aid and abet solid economic growth along with rising living standards. To achieve these goals, inflation is kept low, stable, and predictable. The inflation control target is at the heart of Canadian monetary policy that the Bank and the Government have established. The level of interest rates and the exchange rate determine the monetary environment in which the Canadian economy operates.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.