The Bank of Canada has dropped its key lending rate by another 25 basis points to 4.25 per cent.
It’s the third consecutive decrease since June as core inflation continues to ease and the economy softens.
Bank of Canada Governor Tiff Macklem says further interest rate decreases are possible, and they’re projecting a further easing of inflation, but he warns that inflationary pressures may rise later in the year, driven primarily by shelter costs.
“Shelter price inflation is still too high” says Macklem. “Inflation is expected to ease further in the months ahead, it may bump up later in the year, as base year effects unwind, and there is a risk that upward forces on inflation could be stronger than expected.”
He says there was strong consensus for a 25 basis-point reduction, but the Bank of Canada considered a broader range of possibilities including a .50 point cut.
“If those upward forces on inflation prove to be stronger than we expected, or if there’s significantly less slack in the economy than we assessed, yes, it might be appropriate to slow the pace of declines, on the other hand if the economy was significantly weaker….yes it could be appropriate to take a bigger step, something bigger than 25 basis points.”