Bank of Canada cuts key interest rate again, more cuts ‘reasonable’ if
The Bank of Canada cut its key interest rate to 4.5 per cent on Wednesday, with governor Tiff Macklem saying during a news conference that it would be reasonable to expect further rate cuts if inflation continues to ease.
The cut was widely expected by economists after inflation eased in June. It marked the central bank’s second consecutive cut after last month’s meeting, when it cut rates for the first time since March 2020.
“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate,” Macklem told reporters.
The bank brought key interest rates down by 25 basis points to 4.75 per cent during that June meeting. The rate had previously been held at five per cent since July 2023.
The bank began a long and aggressive cycle of rate hikes in April 2022 to tame persistently high inflation.
After a May inflation report showed that the consumer price index had crept up to 2.9 per cent, some analysts had doubts that the Bank would cut rates again in July. But June’s 2.7 per cent inflation reading quelled those concerns.
“Inflation trends have been directionally encouraging,” even if some categories remain stubbornly elevated, wrote Bank of Montreal economist Benjamin Reitzes in a note.
The bank will make its next interest rate decision on Sept. 4.
Bank ‘not on a predetermined path,’ says Macklem
Macklem and senior deputy Carolyn Rogers spoke about the interest rate decision during a news conference on Wednesday morning.
With inflation expected to move closer to the bank’s two per cent goal, a slack labour market and economic conditions expected to weaken, its governing council made the decision to lower the interest rate, Macklem said during the news conference.
“At the same time, price pressures in shelter and some other services are holding inflation up. We are increasingly confident that the ingredients to bring inflation back to target are in place,” he said.
Bank of Canada governor Tiff Macklem said that while the ingredients are in place to bring inflation down to the bank’s target of two per cent, the bank isn’t guaranteeing more back-to-back interest rate cuts. His comments come as Canada’s central bank lowered its key lending rate to 4.5 per cent on Tuesday.
He said those opposing forces — a weak economy pulling inflation down, and shelter prices keeping it up — means a decline in inflation will most likely be gradual, with…
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