Easing Does It: Bank Of Canada Lowers Interest Rate By Another 0.25%

On the heels of encouraging data releases on the inflation and employment fronts, the Bank of Canada (BoC) has announced a quarter-point cut to its policy interest rate, bringing it down to 4.5% and cementing the fact that we’re firmly in an easing cycle.

“With broad price pressures continuing to ease and inflation expected to move closer to 2%, Governing Council decided to reduce the policy interest rate by a further 25 basis points,” Governing Council said in a statement on Wednesday morning. “Ongoing excess supply is lowering inflationary pressures. At the same time, price pressures in some important parts of the economy — notably shelter and some other services — are holding inflation up. Governing Council is carefully assessing these opposing forces on inflation.”

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This latest move from the central bank was widely anticipated, with three-quarters of economists recently polled by Reuters calling for a cut. On top of that, economists with Canada’s ‘Big Five’ banks were by and large anticipating a cut, and in particular, economists with CIBC, RBC, and BMO accurately forecasted that the Bank would take another quarter-point off the benchmark rate.

June's inflation dip was at the centre of many of the arguments in favour of a July rate cut, but that's not to say we’re out of the weeds with inflation just yet. The latest Consumer Price Index print came down from 2.9% in May to 2.7% in June, however, preferred core inflation remained sticky, and the BoC may need to see more progress on that front before lowering the policy rate for a third time.

To that end, Governing Council said on Wednesday that they are projecting preferred measures of core inflation to slow to around 2.5% in the second half of this year, before and ease gradually through 2025.

There has been some conjecture with respect to how the the BoC will move as the year progresses — a report from RBC Economics released just last week forecasted back-to-back cuts that would bring the policy rate down to 4% by year end — but for their part, BoC officials have been tight-lipped, only saying that it’s “reasonable to expect further cuts” provided inflation continues to ease “broadly in line” with the Bank’s forecast.

The July rate cut closely follows a quarter-point cut delivered in June, which marked the first of a cycle that began in March 2022, and saw 10 rate hikes delivered over that over two-year course. On top of that, June’s cut was the first from the BoC since March 2020, which is when the Bank brought the policy rate down to 0.25% in response to the COVID-19 pandemic.

There are three more interest rate announcements on the books for this year, and those are scheduled for September 4, October 23, and December 11.