The Bank of Canada (BoC) implemented its third consecutive interest rate cut on Wednesday, as it aims to strike a balance between controlling inflation and fostering economic growth.
During its September 4 meeting, the central bank reduced its benchmark rate by 25 basis points, bringing it down to 4.25%. BoC officials have indicated the possibility of additional cuts in the near future, while also warning about the risk of inflation dipping below the 2% target.
Economists are predicting further rate reductions before the year concludes. Markets are anticipating a 93% likelihood of another 25-basis-point cut in October, followed by a subsequent decrease in December. Some analysts have even proposed that a more substantial 50-basis-point cut might occur if economic growth shows continued signs of weakening.
Governor Tiff Macklem noted that the BoC’s governing council considered the option of a larger cut but chose a smaller adjustment due to ongoing inflationary pressures, especially from elevated shelter costs.
“It is reasonable to expect further cuts in our policy rate,” Macklem said.
“As inflation gets closer to target, we want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2% target. We care as much about inflation being below the target as we do above.”
More Cuts Expected
Some economists speculate that weaker-than-expected growth might prompt a larger 50-basis-point cut in the BoC’s next announcement, although the central bank took a more cautious approach this time.