The Bank of Canada cuts its interest rate for the third consecutive time.
With inflation nearing the target, Canada must increasingly guard against the risk of the economy being too weak.
The Bank of Canada cut its official interest rate by 25 basis points to 4.25%, as expected by the market, but expressed concern that weaker-than-expected growth could lead to an excessively rapid drop in inflation.
On Wednesday, the Bank of Canada (BoC) lowered its official interest rate by 25 basis points to 4.25%, in line with market expectations. However, the central bank voiced its concern that weaker-than-expected growth might result in a faster-than-desirable decline in inflation.
The central bank had kept its benchmark rate at a two-decade high of 5% for a year until June, when it began its easing cycle, citing inflation.
Wednesday marked the third consecutive rate cut, with the central bank attributing the decision to the continued decline in inflationary pressures.
In July, headline inflation in Canada fell to its lowest level in 40 months, reaching 2.5%, still above the BoC’s 2.0% target. However, the economy now appears weaker than the central bank anticipated just six weeks ago.
With inflation nearing the target, Canada must increasingly guard against the risk of the economy being too weak, which could cause inflation to fall too quickly. The BoC is concerned not only about inflation exceeding its target but also about it dropping below the target.
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