Bank of Canada cuts key interest rate again, more cuts 'reasonable' if inflation keeps easing

The Bank of Canada cut its key interest rate to 4.5 per cent on Wednesday, with governor Tiff Macklem saying during a news conference that it would be reasonable to expect further rate cuts if inflation continues to ease.

The cut was widely expected by economists after inflation eased in June. It marked the central bank's second consecutive cut after last month's meeting, when it cut rates for the first time since March 2020.

«If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate,» Macklem told reporters.

The bank brought key interest rates down by 25 basis points to 4.75 per cent during that June meeting. The rate had previously been held at five per cent since July 2023.

The bank began a long and aggressive cycle of rate hikes in April 2022 to tame persistently high inflation.

After a May inflation report showed that the consumer price index had crept up to 2.9 per cent, some analysts had doubts that the Bank would cut rates again in July. But June's 2.7 per cent inflation reading quelled those concerns.

«It wasn't that much of a surprise because inflation is coming down,» said Earl Davis, head of fixed income and money markets at BMO Global Asset Management.

He added that weaker retail sales and impending mortgage renewals likely gave the bank impetus to lower rates again.

Consumers will «have more money in their pocket because the bank [lowering interest rates] reduces your interest on your credit cards, and it reduces interest on variable mortgages,» he added.

The bank will make its next interest rate decision on Sept. 4.

Bank 'not on a predetermined path,' says Macklem

Macklem and senior deputy Carolyn Rogers spoke about the interest rate decision