Sept 4: The Bank of Canada cut its key interest rate by 25 basis points on Wednesday and hinted at larger reductions if the economy weakens further in the coming months. This is the third consecutive rate cut, bringing the benchmark rate down to 4.25%.
Economists had expected this move. Since June, the rate has dropped by 75 basis points, affecting borrowing costs for Canadians, including mortgage and loan rates.
Bank of Canada governor Tiff Macklem stated that if inflation continues to decrease as forecasted, more rate cuts could be on the way. He emphasized that the bank will keep evaluating inflation trends and make future policy decisions based on ongoing assessments.
When asked on Wednesday if the Bank of Canada considered a larger cut of 50 basis points, Governor Tiff Macklem didn’t answer directly but didn’t rule it out for future decisions. He mentioned that different scenarios were discussed, including whether it might be appropriate to cut rates more aggressively if needed.
Macklem explained that if the economy turns out to be stronger than expected and inflation remains persistent, the Bank might pause its rate cuts. Conversely, if the economy weakens significantly, a larger cut than 25 basis points could be considered.
Inflation has been cooling throughout 2024, with the latest figure at 2.5% in July. Macklem acknowledged that the Bank’s expectations for economic growth in the third quarter might be too optimistic and could be weaker than previously forecasted.
Recently, the Bank of Canada has shifted its focus from concerns about missing the 2% inflation target to issues in the labor market. Macklem also highlighted that the Bank is concerned about inflation falling below 2% just as much as it is about it staying above the target.
