Ottawa, September 15, 2024 – The Governor of the Bank of Canada (BoC), Tiff Macklem, has suggested that the central bank could accelerate the pace of its interest rate cuts amid concerns over Canada’s labor market and the possibility of falling oil prices. This development, reported by the Financial Times, comes as the central bank adjusts its monetary policy to navigate emerging economic risks.
In an interview with the Financial Times, Macklem emphasized that the bank’s focus is shifting as inflation nears the target rate. “As you get closer to the [inflation] target, your risk management calculus changes,” Macklem explained. “You become more concerned about the downside risks. And the labor market is pointing to some downside risks.”
Series of Rate Cuts
The Bank of Canada has been gradually lowering its key policy rate, which stood at a two-decade high of 5% for over a year. Starting in June 2024, the BoC cut the rate by 25 basis points on three consecutive occasions, bringing it down to 4.25% earlier this month. This series of rate cuts aims to support the economy, which has shown signs of weakness, despite lower inflation figures.
| Date | Policy Rate |
|---|---|
| Before June 2024 | 5% |
| After 3 consecutive cuts | 4.25% |
Inflation Levels in Canada
Canada’s inflation rate has been steadily declining, hitting a 40-month low of 2.5% in July. While this is closer to the BoC’s 2% target, Macklem has expressed concerns about the potential for trade disruptions and other external factors to cause larger deviations from the target. In a recent speech to the Canada-UK Chamber of Commerce in London, Macklem highlighted the risks that could delay the expected economic recovery, despite optimistic growth projections.
Economic Outlook
While growth is anticipated to strengthen, there are still uncertainties that could impact Canada’s economic performance. The BoC is monitoring downside risks, particularly those stemming from the labor market and fluctuating oil prices, which are key drivers of the Canadian economy.
With inflation moderating and downside risks persisting, Macklem’s remarks signal that the BoC could consider more aggressive rate cuts if economic conditions worsen, in an effort to stabilize growth and ensure long-term economic health.
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