The Bank of Canada cut its key interest rate by 25 basis points on Wednesday, bringing it to 4.25% and marking the central bank’s third consecutive decision to do so over the past year.
“The global economy expanded by about 2½% in the second quarter, consistent with projections in the Bank’s July Monetary Policy Report,” reads a statement from the Bank of Canada.
The Canadian economy grew by 2.1% in the second quarter, driven by government spending and business investment. However, the labour market continues to slow, a trend now seen for months.
Wage growth remained elevated, however, in relation to productivity.
“Global financial conditions have eased further since July, with declines in bond yields. The Canadian dollar has appreciated modestly, largely reflecting a lower US dollar. Oil prices are lower than assumed in the July MPR,” reads the statement.
“As expected, inflation slowed further to 2.5% in July. The Bank’s preferred measures of core inflation averaged around 2 ½% and the share of components of the consumer price index growing above 3% is roughly at its historical norm.”
The biggest contributor to total inflation continues to be high shelter prices, however, it’s starting to slow. Inflation remains elevated in some other services.
“With continued easing in broad inflationary pressures, Governing Council decided to reduce the policy interest rate by a further 25 basis points,” it said.
According to the central bank, “monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook. The Bank remains resolute in its commitment to restoring price stability for Canadians.”
The Bank of Canada’s governor Tiff Macklem said that future rate cuts can be expected as long as the trend of easing inflation continues.
“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate,” said Macklem. “We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time.
Macklem was asked if the Bank of Canada had considered cutting rates by half a percentage point instead of a quarter, and he said that while the central bank didn’t this time, steeper cuts may be a possibility in the future.
“We did discuss some different scenarios. Scenarios where it might be appropriate to slow the decline in interest rates… and where it might be appropriate to cut by 50 basis points,” he said.
