Bank of Canada cuts key interest rate again, signals more cuts ahead

The Bank of Canada delivered its third consecutive interest rate cut Wednesday, bringing its key lending rate to 4.25 per cent.

The quarter percentage point rate cut was widely expected by forecasters, given ongoing softness in the economy and easing inflation.

In his written remarks, governor Tiff Macklem says the central bank’s decision reflected two considerations.

“First, headline and core inflation have continued to ease as expected,” Macklem said.

“Second, 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 two per cent target.”

The Bank of Canada noted that while the economy grew at a faster pace than expected in the second quarter, preliminary data for June and July suggest economic activity slowed.

Macklem reiterated that if inflation continues to ease as expected, it is “reasonable” to expect more rate cuts.

Canada’s annual inflation rate has been below three per cent for months, reaching 2.5 per cent in July.

With the central bank’s target rate in sight, Macklem has been stressing the importance of balancing the upside and downside risks ahead.

“There is a risk that the upward forces on inflation could be stronger than expected,” Macklem said.

“At the same time, with inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much.”

NerdWallet Canada spokesperson and financial expert, Shannon Terrell, said, “Another rate cut signals the Bank of Canada’s dogged commitment to fueling economic growth amid the slog of sticky inflation. But a lower overnight rate won’t translate into speedy financial relief. Instead, a steady trickle of rate cuts from the Bank will act more as a gradual thaw after a long winter. Canadians will need to stay patient as they wait for warmer, more favourable climes.”