As was widely expected, the Bank of Canada lowered its trendsetting overnight interest rate by 25-basis points to 4.25%, the central bank’s third consecutive cut since June of this year.
However, Bank of Canada officials signalled that more interest rate cuts are likely needed in coming months to help counter a slowdown in the domestic economy.
Speaking to reporters in Ottawa, Bank of Canada Governor Tiff Macklem said there is a need for the central bank to help reinvigorate growth in the economy.
“With inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much,” said Macklem.
The governor added that it is “reasonable” to expect more interest rate cuts in coming months.
Futures traders expect additional 25-basis point interest rate reductions at the Bank of Canada’s final meetings this year scheduled for October and December.
Since June, the Bank of Canada has lowered interest rates by a combined 75-basis points, bringing the overnight rate down from 5%, its highest level in more than 20 years.
The rate reductions come as inflation in Canada has eased to an annualized rate of 2.5% from a peak of 8.1% in June 2022.
At the same time, there is mounting evidence that the economy is slowing down. Canada’s unemployment rate has been steadily rising over the last year and currently sits at 6.4%.
The Bank of Canada’s next interest rate decision will occur on Oct. 23. The central bank targets inflation at an annualized 2%.