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The Bank of Canada (BoC) released its interest rate decision on Wednesday. The central bank lowered its interest rate to 0.50% from 0.75%. It was the second interest rate cut this year.
This decision was not expected by analysts.
"Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target," the bank said in its statement.
A weak global economic growth, low inflation in Canada and low oil prices lead to this decision.
The central bank said that the real GDP in Canada contracted in the first half of the year.
Canada's real GDP is expected to expand by just over 1% in 2015 and about 2.5% in 2016 and 2017. The central bank expect the economy to return to full capacity and inflation to 2% on a sustained basis in the first half of 2017.
The BoC said that inflation in Canada was about 1% in the recent months due to lower energy prices, while core inflation was about 2%.
"The lower outlook for Canadian growth has increased the downside risks to inflation," the central bank said.