Bank of Canada cuts interest rate again and signals more to come
The Bank of Canada on Wednesday cut its interest rate by 25 basis points for a second time in a row, citing a pullback in household spending on both consumer goods and housing as a reason to bring the rate down to 4.5 per cent even as price pressures in shelter and services continue to keep inflation elevated.
“Economic growth in Canada has picked up, but remains weak relative to population growth,” Bank of Canada governor Tiff Macklem said during prepared remarks in Ottawa. “Household spending has been soft.”
The rate cut was in line with what markets and economists were expecting given the economic picture, and Macklem signalled that more cuts could be coming.
“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy rate,” he said. “The timing will depend on how we see these opposing forces play out.”
Randall Bartlett, senior director of economics at the Fédération des caisses Desjardins du Québec, said the central bank has struck a dovish tone.
“While governing council didn’t provide any explicit guidance about what comes next, there’s a strong sense that policymakers feel an urgency to continue the rate-cutting cycle in September,” he said in a note to clients. “The dovish language in the releases paints a picture of officials who are growing more worried about the likelihood of recession.”
The decrease in discretionary spending is mainly being driven by households having to allocate a large amount of their income to servicing their debts and a slowdown in demand for motor vehicles and travel abroad, according to the central bank’s Monetary Policy Report.
David Rosenberg, founder and president of Rosenberg Research & Associates Inc., said the central
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