Bank of Canada Signals Potential for More Rate Cuts Amid Falling Inflation

OTTAWA – In a significant shift in policy outlook, Bank of Canada Governor Tiff Macklem indicated on Tuesday that further rate cuts may be on the horizon, attributing this expectation to the notable progress in decreasing inflation to the targeted 2 percent level. This announcement marks Macklem's first public comments since August's consumer price index data was released, showing a drop to this level—the lowest recorded since February 2021.

The Bank of Canada’s objective is to maintain inflation within a range of 1 to 3 percent, and with recent figures aligning closely to this target, Macklem’s remarks suggest a more optimistic tone. “With the continued progress we've seen on inflation, it is reasonable to expect further cuts in our policy rate,” he stated at a conference in Toronto. This contrast to his previous rhetoric—where he had suggested more cuts would be contingent on continued success in managing inflation—highlights a new phase in the central bank’s monetary strategy.

Since June, the Bank has made a series of rate cuts, reducing its benchmark borrowing rate by a cumulative 75 basis points to the current 4.25 percent. Economists are closely monitoring the upcoming monetary policy announcement slated for October 23, where markets are pricing in a more than 58% probability of a substantial 50 basis points cut, with a further 25 basis point reduction anticipated in December.

Macklem expressed satisfaction over achieving the inflation target but acknowledged the challenges ahead. “Now we want to keep inflation close to the center of our inflation-control band. We need to stick the landing,” he emphasized. The Bank is also monitoring key economic indicators that reflect broader growth, particularly consumer spending and business investment.

Interestingly, data from August revealed that core inflation measures also declined to their lowest in over three years, raising hopes for sustained economic recovery. However, Macklem cautioned that signs of slowing growth must be taken seriously. He reiterated the importance of revitalizing economic activity to soak up any existing slack within the economy, as projections suggest that the third quarter growth could fall significantly short of the previously estimated 2.8 percent.

This evolving economic landscape is critical not just for policymakers, but also for Canadian households and businesses, as interest rates directly influence borrowing costs and consumer confidence. As the Bank of Canada navigates these waters, all eyes will be on subsequent data and decisions that will shape the nation's financial future.