Governor of the Bank of Canada Tiff Macklem speaks in Ottawa on Wednesday, July 24, 2024 at a news conference on the bank's interest rate announcement . THE CANADIAN PRESS/Justin Tang

The Bank of Canada lowered its benchmark policy interest rate by another quarter percentage point, citing confidence that inflation pressures are easing.

The central bank cut the overnight rate by 0.25 percentage points to 4.25 per cent, according to a statement on its website. Wednesday’s move marks the third consecutive rate cut, with similar-size reductions at the June and July meetings.

Economists anticipate the central bank will continue a regular path of incremental cuts in coming months that will bring the policy rate down to 3 per cent by the middle of next year.

“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate,” Bank of Canada Governor Tiff Macklem said in an opening statement to reporters ahead of his press conference.

For borrowers, Wednesday’s cut means prime lending rates offered by commercial banks should fall to just under 6.5 per cent. A 3 per cent policy rate should shave the prime rate to about 5.2 per cent. Variable rate loans offered by commercial banks are based on prime lending rates.

Here are some highlights from the press conference:

Macklem said the central bank is prepared to accelerate rate cuts, including a 50 basis point reduction, should the economy remain weak and inflation slows more than expected. Still, he said there was a “strong consensus” at the Governing Council for a quarter point reduction. He also said that if inflation proves more stubborn than expected, the central bank can slow the pace of cuts. “We are not on a predetermined path.”
Currently at 2.5 per cent, inflation is seen closing in on the Bank of Canada’s 2 per cent target in coming months though there could be a temporary move up near the end of 2024.
The economy has been more sluggish than expected over the summer, posing a downside risk to the Bank of Canada’s forecast for strong growth in the third quarter. In July, the central bank forecast annualized growth of 2.8 per cent for the quarter.
Macklem said the central bank is trying to accelerate growth to above 2 per cent in order to eliminate existing slack in the economy. (This is an extremely dovish statement which suggests the Bank of Canada is prepared to lean heavily into any continued weakness. Only one of the country’s five largest banks is projecting quarterly growth of more than 2 per cent at any time over next year and half.)
There are also some upside risks, including the possibility that there is less slack in the labour market than it seems, Macklem said.
The central bank governor said that while the economy is close to a soft landing, “we have not landed it yet.”