Bank of Canada Cuts Interest Rate for Third Time in Four Months

Strategic Insights -

The Bank of Canada made its third consecutive rate cut on Wednesday, reducing the key overnight lending rate to 4.25 per cent. Governor Tiff Macklem stated that there was a "strong consensus" among central bankers for a quarter-percentage-point reduction, citing the need to get inflation down to the two per cent target. He emphasized that the Bank will continue to monitor the economy and is prepared to make further cuts if necessary. Economists had widely expected this move, following similar cuts in June and July.

Key Takeaways:

  • The Bank of Canada has cut its key overnight lending rate to 4.25 per cent for the third consecutive time.
  • Governor Tiff Macklem stated that there was a "strong consensus" among central bankers for a quarter-percentage-point reduction.
  • The Bank aims to bring inflation down to the two per cent target, with Macklem emphasizing that Canadians can expect further cuts if inflation continues to approach this target.
  • The economy has been struggling, with the labour market weakening in recent months and real gross domestic product falling on a per-person basis.
  • BMO economist Benjamin Reitzes forecasts that the Bank of Canada will continue to cut rates, with the possibility of further rate cuts well into 2025.
  • The labour market is expected to continue weakening, with Statistics Canada set to release August employment numbers on Friday.

Statistics:

  • The Bank of Canada has reduced its key overnight lending rate by 1.5 percentage points in the past four months.
  • Inflation fell to 2.5 per cent in July, with shelter inflation showing signs of slowing.
  • Labour market weakness has been a concern, with the jobless rate expected to tick slightly higher to 6.5 per cent in August.
  • Real gross domestic product fell on a per-person basis in recent months, with the economy struggling to promote growth.
  • The Bank of Canada's two per cent inflation target was mentioned as a key goal by Governor Tiff Macklem.

Sources:

  • Bloomberg
  • The Toronto Star
  • BMO (Bank of Montreal)
  • Statistics Canada