July 24: The Bank of Canada reduced its benchmark interest rate by 0.25 percentage points on Wednesday, marking the second consecutive cut in the central bank’s current easing cycle. The policy rate, which influences borrowing costs across Canada, now stands at 4.5 percent.
This move, anticipated by many economists, comes as inflation cools and the Canadian economy shows signs of weakness. Bank of Canada Governor Tiff Macklem expressed confidence in prepared remarks that inflation will continue to decline, while predicting an uptick in economic growth in the latter half of the year.
“We are increasingly confident that the ingredients to bring inflation back to target are in place,” Macklem stated.
The easing cycle began in June with a 25-basis-point reduction. Since the central bank started raising its policy rate in March 2022, higher interest rates have increased borrowing costs for Canadians, businesses, and governments, discouraging spending to curb decades-high inflation levels.
Macklem reiterated that future rate decisions will be data-dependent and will consider the outlook for inflation. “If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate,” he said. “The timing will depend on how we see these opposing forces playing out. In other words, we will be taking our monetary policy decisions one at a time.”
With inflation having decreased to 2.7% in June, the Bank of Canada remains committed to adjusting its policy rate as necessary, based on the latest economic data and forecasts.
