Following Bank of Canada rate cut, Macklem says it’s “reasonable” to expect more

At the beginning of September, The Bank of Canada announced a quarter-point cut to its overnight target rate, reducing it to 4.50%, and hinted that further reductions may follow if inflation trends positively. This rate is now 50 basis points below its previous peak of 5.00%. Governor Tiff Macklem suggested that additional cuts could occur depending on the inflation trajectory, emphasizing a cautious, data-driven approach. Despite easing price pressures overall, specific sectors like shelter and certain services continue to exert upward pressure on inflation.

Fast-forward to Sept 17th, Canada’s inflation rate came in at 2.0%. Lower than market consensus and lower than the 2.2% pre-pandemic. As indicated, Canada had a prime rate of 3.95% pre-pandemic with a lower unemployment rate and a higher inflation rate.  This news may very well set the stage for some more aggressive rate cuts in the near future. Perhaps a 0.50% drop just like the US Federal Reserve did? We just have to wait and see the results of their October 23rd meeting. Please note that the overnight rate directly affects variable rates not fixed.