Bank of Canada cuts rates for third time in a row, to 4.25%

4th Sep 2024 15:11

(Sharecast News) - The Bank of Canada cut its benchmark rate on Wednesday to 4.25% from 4.5%, in line with economists' expectations, amid easing inflationary pressures.

This marked the third rate cut since June. The Bank said it reflects the fact that headline and core inflation have continued to ease as expected and that as inflation gets closer to target, economic growth needs to pick up to absorb the slack in the economy so inflation returns "sustainably" to the 2% target.

The BoC said in a statement: "As expected, inflation slowed further to 2.5% in July. The Bank's preferred measures of core inflation averaged around 2 .5% and the share of components of the consumer price index growing above 3% is roughly at its historical norm. High shelter price inflation is still the biggest contributor to total inflation but is starting to slow. Inflation also 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. Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up. Governing Council is carefully assessing these opposing forces on inflation. Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook."

Governor Tiff Macklem said that if inflation continues to ease broadly in line with the Bank's July forecast, it is "reasonable" to expect further cuts in the policy rate.

"We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time," he said.

Oxford Economics economist Michael Davenport said: "Overall, the Bank appears to be leaning into its recent messaging that its focus is shifting to downside risks to growth and inflation and reiterated that it intends to lower rates further as long as inflation evolves in line with its July forecast.

"We have a similar inflation outlook to the BoC but expect the economy will underperform its forecast in the near term. This should convince the Bank that more rate cuts are needed to prevent a sharper slowdown in the economy and an undershoot of its inflation target down the road."