Bank of Canada Lowers Interest Rate for Third Consecutive Time

The Bank of Canada has once again reduced its benchmark interest rate, marking the third consecutive time it has taken this step. Governor Tiff Macklem stated that economic growth needs to pick up to prevent inflation from falling too much below the 2-per-cent target. The central bank reduced its policy rate to 4.25 per cent from 4.5 per cent, a move that was widely anticipated. This reduction was aimed at easing inflation concerns, but the bank remains concerned about downside risks to the economy.

Key Takeaways:

• The Bank of Canada has lowered its benchmark interest rate to 4.25 per cent for the third consecutive time, from 4.5 per cent.
• Governor Tiff Macklem warned that economic growth needs to pick up to prevent inflation from falling too much below the 2-per-cent target.
• The central bank reduced its policy rate to ease inflation concerns but remains concerned about downside risks to the economy.
• Investors are predicting a flurry of rate cuts in the months ahead, with interest-rate swaps pricing in five additional quarter-point cuts by June 2025.
• Financial analysts have said it's possible the Bank of Canada could deliver a half-point cut at one of its coming decisions.
• The Bank of Canada gave a mixed assessment of the country's recent economic performance, stating that real GDP grew at an annualized rate of 2.1 per cent in the second quarter, while the economy struggled on various fronts.
• Per-capita output has fallen for five consecutive quarters, and the unemployment rate has risen to 6.4 per cent from a low of 4.8 per cent.
• The Bank of Canada will update its economic projections at the Oct. 23 rate decision.
• A sluggish economy is helping to tamp down price pressures, with the Consumer Price Index rising at an annual rate of 2.5 per cent in July.
• The central bank expects inflation to make a sustainable return to 2 per cent next year, but with the economy growing below its potential, there's a risk that inflation could drift below the target.

Statistics:

• The Bank of Canada has reduced its policy rate by 0.25 per cent for the third consecutive time.
• The benchmark interest rate is now 4.25 per cent.
• Investors are predicting five additional quarter-point cuts by June 2025.
• The real gross domestic product grew at an annualized rate of 2.1 per cent in the second quarter.
• Per-capita output has fallen for five consecutive quarters.
• The unemployment rate has risen to 6.4 per cent from a low of 4.8 per cent.
• The Consumer Price Index rose at an annual rate of 2.5 per cent in July.
• The central bank expects inflation to make a sustainable return to 2 per cent next year.

Sources:

• Bloomberg data on interest-rate swaps
• Bank of Canada's latest forecast from July
• Statistics Canada's Labour Force Survey for August
• Bank of Montreal chief economist Doug Porter's client note
• Jackson Hole economic conference in Wyoming
• U.S. Federal Reserve's decision on Sept. 18
• Governor Tiff Macklem's statement on the Bank of Canada's rate decision.