Bank of Canada cuts interest rate for the second time to 4.5%, Canada Reviews

The Bank of Canada delivered the second consecutive interest rate cut of 25 basis points on Wednesday, dropping the overnight rate to 4.5 per cent. This comes after the central bank cut the rate to 4.75 per cent in June, the first rate cut in four years.

The second cut was widely expected by experts, with CIBC deputy chief economist Benjamin Tal noting on Tuesday that it was a “given” and would likely be followed by at least two more cuts before the end of 2024.

The Bank previously held the overnight rate at 5 per cent through six consecutive announcements after a hike in July 2023, the final one in a series of hikes that began in March 2022 from a low of 0.5 per cent.

Though inflation went up slightly to 2.9 per cent in May, raising concerns that the Bank of Canada may hold yet again, a July report showed that the consumer price index (CPI) moderated to 2.7 per cent. “The Bank’s preferred measures of core inflation have been below 3% for several months and the breadth of price increases across components of the CPI is now near its historical norm,” the BoC’s Wednesday statement read. 

In a press conference on Wednesday, Bank of Canada governor Tiff Macklem noted that the economy now has more room to grow without putting pressure on inflation. “If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy rate,” he said.

However, once again, Macklem wouldn’t confirm or deny future cuts or how far interest rates will go down before the end of 2024, despite three additional rate announcements on the horizon. “We’re not on a pre-determined path; we will be taking our monetary policy decisions one at a time,” he said.

Macklem also confirmed that there wasn’t a discussion about cutting by 50 basis points for the July announcement. “There was a clear consensus to cut by 25 basis points,” he said.

Tal suggested to Streets of Toronto that the overnight rate will be brought down to 4 per cent by the end of 2024, with two more cuts of 25 basis points on the horizon.