Wed Sep 18 01:35:27 UTC 2024: ## Bank of Canada Cautiously Celebrates Inflation Slowdown, More Rate Cuts Expected

**Toronto, Canada** – While welcoming the return of inflation to the Bank of Canada’s two per cent target, Senior Deputy Governor Carolyn Rogers cautioned against declaring victory just yet. Speaking at a Bloomberg New Voices event, Rogers emphasized that core inflation measures remain elevated and policymakers need to see further cooling in price pressures.

Despite the August CPI report showing a two per cent yearly increase, the lowest rate since early 2021, the Bank of Canada’s preferred core inflation measures, which exclude volatile price swings, averaged 2.35 per cent, indicating a need for continued vigilance.

Rogers acknowledged the success of the Bank’s aggressive interest rate hikes, which brought the overnight rate from 0.25 per cent to five per cent in less than 18 months, effectively taming surging consumer costs. This strategy, combined with global economic slowdown, improved supply chains, and moderating energy prices, has seen Canada’s inflation rate fall 6.1 percentage points since its peak of 8.1 per cent in June 2022.

However, the Bank is now more concerned about the potential for a deeper economic slowdown, leading to a focus on rising unemployment and stimulating growth. This shift is reflected in three consecutive rate cuts since June, bringing the overnight rate to 4.25 per cent, with more cuts expected in the near future.

“It’s not an absolute tilt to the downside risks, but definitely we’re in a period where the risks are more balanced,” Rogers stated.

Economists are observing weakness in the labour market and are advocating for larger rate cuts to reduce borrowing costs. Governor Tiff Macklem has indicated that the Bank may consider a 50-basis point rate reduction, or even more, in a single decision, if inflation and economic growth slow faster than anticipated. However, he also acknowledged that the Bank could pause cuts if growth is stronger or inflation remains persistent.

Traders in overnight swaps have increased their bets on a larger-than-usual rate cut in October, with odds of a 50-basis point cut exceeding 50 per cent.

Frances Donald, RBC’s new Chief Economist, emphasized that the magnitude of short-term rate cuts is less crucial for businesses than the overall economic trajectory. She expects the current rate cuts to provide relief, and by 2025, their positive impact should become apparent.

The Bank of Canada forecasts inflation to slow to 2.3 per cent in the third quarter, although policymakers warn of potential base effects that could push inflation higher by the end of 2024.

As the Bank navigates the complex economic landscape, its efforts to manage inflation while fostering sustainable growth will be closely watched by Canadians.

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