BOC cuts interest rates OTTAWA—The Bank of Canada delivered a second straight cut to its main interest rate after a quarter-point reduction in June, and signaled there is likely more to come as officials grow increasingly worried about downside economic risks.
The Bank of Canada lowered on Wednesday its target for the overnight rate to 4.5% from 4.75%. It was the first Group of Seven central bank to cut interest rates after global authorities raised borrowing costs rapidly to tame historically high inflation. The European Central Bank quickly followed suit, but this month it opted to keep its main interest rate unchanged.
In contrast, Canada’s central bank cut for a second time, reflecting a weakening backdrop as the economy—which, as a share of gross domestic product, has among the highest private-sector debt levels in the developed world—deals with sharply higher rates
The Bank of Canada said the amount of spare capacity in the economy has increased, the labor market has “cooled significantly,” and consumption has stagnated as pent-up demand fades and households sock away more of their earnings to finance loan payments.
Bank of Canada Gov. Tiff Macklem said central bank officials are “increasingly confident” that inflation is on a path toward its 2% target, which he expects to reach next year. The central bank sets rate policy to achieve and maintain 2% inflation.
Inflation in June decelerated to 2.7% after a hotter-than-expected rise in the previous month, and has slowed sharply from a 3.4% reading in December. Core inflation, which strips out volatile items like food and energy, has remained below 3% for several months and the central bank expects that to cool to about 2.5% in the second half of the year.
“With the [inflation] target in sight and more excess supply in the economy, the downside risks are taking on increased weight in our monetary policy deliberations,” Macklem said. “We need growth to pick up so inflation does not fall too much, even as we get inflation down to target.”
The central bank said it doesn’t expect the slack presently in the economy to be fully absorbed until 2026. In an accompanying quarterly forecast, the Bank of Canada said it anticipates growth to pick up steam, with household spending recovering in the second half of 2025 as “lower interest rates ease debt payments,” and housing construction accelerating as high-funding costs become less binding amid lower rates.