Bank of Canada Cuts Interest Rate Again, Warns of Economic Slowdown

The Bank of Canada made its second consecutive interest rate cut on Wednesday, lowering its policy rate by a quarter of a percentage point to 4.5 per cent. Governor Tiff Macklem emphasized the central bank's concern about the risk of high interest rates slowing the economy and inflation, stating that undershooting the inflation target would be just as concerning as overshooting it. Economists believe that more rate cuts could come sooner rather than later, as the central bank seeks to balance the opposing forces of economic weakness and price pressures in shelter and services.

Key Takeaways:

• The Bank of Canada lowered its policy rate by a quarter of a percentage point to 4.5 per cent, in a move to slow down the economy and inflation.
• Governor Tiff Macklem warned that undershooting the inflation target of 2 per cent would be just as concerning as overshooting it.
• The central bank's decision to cut interest rates again suggests that it believes the economy is weaker than previously thought.
• Macklem noted that the path back to 2 per cent inflation is unlikely to be a straight line, due to the opposing forces of economic weakness and price pressures in shelter and services.
• The Canadian economy is expected to strengthen in the second half of 2024, with real gross domestic product growth of 1.2 per cent this year, followed by 2.1 per cent in 2025.
• The central bank's next interest rate decision is scheduled for September 4.
• The Bank of Canada's decision to cut interest rates again was widely expected by economists, given the continued easing of inflation and weak economic conditions.
• BMO chief economist Douglas Porter noted that the Bank of Canada's tone has shifted, and it now seems to be biased towards continuing to cut interest rates.

Statistics:

• The Bank of Canada has lowered its policy rate by a total of 50 basis points since March 2023.
• Canada's annual inflation rate fell to 2.7 per cent in June, down from 3.4 per cent in May.
• The central bank expects inflation to return to its 2 per cent target next year, according to its monetary policy report.
• Real gross domestic product growth is expected to be 1.2 per cent in 2024, followed by 2.1 per cent in 2025.
• The Canadian economy remains weak relative to population growth, according to the Bank of Canada.

Sources:

• "The Bank of Canada's monetary policy report"
• "Canada's annual inflation rate"
• Douglas Porter, BMO chief economist
• Governor Tiff Macklem's statement during the news conference
• The Abbotsford News