Bank of Canada Cuts Key Interest Rate by Quarter Point to 4.5%

On Wednesday, the Bank of Canada cut its key interest rate for a second consecutive time but warned the path back to 2% inflation may be uneven and would ultimately determine the pace of future cuts, The Canadian Press reported (7-24-24).

The central bank says its decision to lower its policy rate by a quarter percentage point was motivated by easing price pressures and weakening economic conditions. Its key interest rate now stands at 4.5%.

In a prepared statement, governor Tiff Macklem noted that as inflation edges closer to target, the central bank is also trying to avoid the risk of the economy and inflation weakening by more than expected. However, he said the path back to 2% inflation likely won’t be a straight line.

“The overall weakness in the economy is pulling inflation down. At the same time, price pressures in shelter and some other services are holding inflation up,” Macklem said.

Although Macklen said the Bank of Canada is “increasingly confident” that inflation is headed back to target, the push and pull between those opposing forces could affect the pace at which price growth eases.

“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate. The timing will depend on how we see these opposing forces playing out,” he said. “In other words, we will take our monetary policy decisions one at a time.”

The Bank of Canada’s next interest rate decision is scheduled for September 4th.