According to the Wise News Finance app, on Wednesday, the Bank of Canada announced a 25 basis point reduction in the benchmark interest rate from 4.75% to 4.5%, the second consecutive rate cut, in line with market expectations. The central bank stated that if inflation continued to slow, further interest rate cuts may be necessary in the future.

The current rate is the lowest since June 2023. Last month, the Bank of Canada lowered rates from 5% to 4.75%, the first rate cut in over four years.

The Governor of the Bank of Canada, Tiff Macklem, stated that the decision was based on economic data showing a weak job market, economic supply surplus, and continued inflation decline. He noted: "We are becoming increasingly confident that the factors needed to bring inflation back to target are in place."

Since the rate hike cycle began in March 2022, the inflation rate has dropped from a peak of 8.1% in June 2022 to 2.7% in June 2024, despite a slight rebound in May. Macklem stated: "Looking ahead, we expect inflation to slow further." However, he also mentioned that the return of the inflation rate to the 2% target may not be a linear process. "The overall weakness of the economy is dragging down inflation. At the same time, price pressures for housing and other services are pushing up inflation."

Although the central bank is increasingly confident in the return of inflation to its target level, Macklem pointed out that opposing forces in the economy could affect the speed of price growth. "If inflation continues to broadly meet our expectations, we have reason to expect that policy rates will be further reduced," he said. "The specific timing depends on how we view these opposing forces."

Many economists and major banks predict that the central bank may cut rates up to four times by the end of 2024. The speed of the rate cut may be influenced by the actions of other central banks, such as the Bank of England and the Federal Reserve. Last month, the Bank of Canada became the first Group of Seven central bank to cut rates since the outbreak of the pandemic.

The central bank expects overall inflation pressures to continue to ease, with the core inflation indicator it monitors currently running below 3% and expected to slow to around 2.5% in the second half of 2024. The bank emphasized in its "Monetary Policy Report" that inflation is being influenced by high housing costs (driven by rental and mortgage interest costs) and the service industry closely tied to wages, such as restaurants and personal care. The report warned that the "housing market imbalance" is likely to continue to push inflation upward for most of the forecast period.

Macklem stated: "We are carefully evaluating the downward impact of sustained supply surpluses on inflation and pressure from housing and other services, which are pushing up inflation. Monetary policy decisions will be based on the information to be released and our assessment of its impact on the inflation outlook."

The Bank of Canada's next interest rate decision will be announced on September 4th.