Canada Lowers Benchmark Interest Rate to 4.5% Again... Indicates Possible Further Cuts

The Bank of Canada (BOC), Canada's central bank, lowered its benchmark interest rate to 4.50% on the 24th (local time), as expected by the market. This marks the second consecutive rate cut following the policy shift in June, when it was the first among the Group of Seven (G7) countries to do so. Tiff Macklem, Governor of the Bank of Canada, indicated the possibility of further rate cuts, citing increasing downside risks to the economy.

[Image source=Reuters Yonhap News]

At the monetary policy meeting held that day, the Bank of Canada announced a 0.25 percentage point cut in the benchmark interest rate from 4.75% to 4.50%. This is the second consecutive rate cut following the decision in June.

Governor Macklem stated in a release, "We have continued to make progress in reducing inflation over the past few months," adding, "As the target comes into view and excess supply emerges in the economy, downside risks are becoming increasingly important in monetary policy decisions." This suggests growing concerns about a recession caused by high interest rates as the 2% inflation target approaches.

The Bank of Canada's rate cut was anticipated well in advance. Canada's consumer price index (CPI) inflation rate, which once surged to the 8% range, had slowed to 2.7% as of June. Last month, the Bank of Canada became the first among G7 countries to cut rates, marking the first reduction in about four years.

Signals for additional rate cuts were also confirmed. At the press conference, Governor Macklem repeatedly said, "It would be reasonable to expect further cuts." However, he also added a fundamental remark that the Bank of Canada's rate decision path is not predetermined. He emphasized, "(Decisions) will depend on the data received," and "It depends on where inflation indicators are heading."

Economists have evaluated the Bank of Canada's stance that day as dovish (favoring monetary easing). Randall Bartlett, Chief Canadian Economist at Desjardins, wrote in an investor memo, "The dovish remarks show concerns about the possibility of a recession," and "Officials feel an urgency to continue cuts in September." Douglas Porter, Chief Economist at BMO Capital Markets, said the September cut is "very likely," and predicted that two additional cuts by the end of this year would lower the rate to 4%.

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