On Wednesday, the Bank of Canada announced its third consecutive interest rate cut, reducing the benchmark rate by 25 basis points to 4.25%. Governor Tiff Macklem confirmed the cut and signaled the possibility of steeper reductions in the coming months if economic conditions weaken further.
Since the easing cycle began in June, the policy rate has fallen by 75 basis points. While inflation has continued to cool, dropping to 2.5% in July, Macklem acknowledged the need to remain flexible, stating that future rate cuts would depend on the balance between inflation trends and economic performance. The Bank of Canada is prepared to consider larger cuts if the economy deteriorates more than expected, with Macklem leaving open the possibility of cutting rates by 50 basis points if necessary.
Economists, including CIBC’s Avery Shenfeld, predict further rate cuts through 2024, potentially bringing the rate down to 2.5% by next year. As the Bank monitors inflation and labor market trends, it remains committed to assessing each monetary policy decision individually, with a focus on stabilizing inflation while preventing the economy from weakening too much.
