Bank of Canada Lowers Key Interest Rate to 4.25 Percent

OTTAWA—The Bank of Canada reduced its key interest rate for the third time in 2024, bringing it down from 4.5 percent to 4.25 percent.
“As inflation gets closer to target, we want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2 percent target.”
Macklem added that further reductions in the interest rate are “reasonable to expect” if inflation continues to slow, but that the central bank will “take our monetary policy decisions one at a time.”
The Canadian economy grew by an annualized rate of 2.1 percent in the second quarter of 2024, buoyed by increased government spending and business investment, Macklem said. The economy grew by 1.8 percent in the first quarter of the year, which he said suggests a “healthy rebound from the near-zero growth we had in the second half of 2023.”
The governor said unemployment has risen over the last year to 6.4 percent in June and July, with the increase concentrated in youth and newcomers to Canada, who are finding it more difficult to obtain a job. Business layoffs have remained “moderate” but hiring has been weak.
Macklem told reporters on Sept. 4 that while there is currently “little evidence of broad-based price pressures,” shelter price inflation “is still too high” in Canada. He said it continues to be the largest contributing factor to overall inflation in Canada, “despite some early signs of easing.”
The governor also warned that with inflation approaching the central bank’s target of 2 percent, it needs to increasingly guard against the risk of a weaker economy. “We care as much about inflation being below the target as we do above,” Macklem said.