Bank of Canada cuts rates again, hints at further easing. On July 24, the Bank of Canada cut its interest rate by 0.25 percentage points for the second time in a row, to 4.5%. The move was expected as inflation pressures ease and economists expected more action. Bank Governor Tiff Macklem said further rate cuts remain possible, but decisions will be made on a data-driven basis, ruling out hard-and-fast plans.

Shifting Focus: From Inflation to Recession
The Bank of Canada has become increasingly concerned about the health of the economy, gradually shifting its focus from inflation control to preventing a sharp economic downturn and maintaining a smooth landing for the economy. While inflation is under control, officials are concerned that a slowdown in household spending and a possible deterioration in the labour market could hurt the economic recovery.

Risks and impact on households
The central bank notes that household spending has fallen short of expectations, posing a significant risk to the economy. In this context, particular attention is paid to the upcoming wave of mortgage repayments, which could weigh on consumer spending and economic stability. A slowdown in the labour market is also a concern, as more job seekers face difficulties finding work.

Expectations and next steps for the bank
After cutting rates in June, the Bank of Canada became the first among the G7 central banks to begin easing policy.

The European Central Bank has also followed suit, and economists now expect similar steps from the US Federal Reserve. Forecasts suggest that the Bank of Canada could continue to cut rates at each of its remaining meetings in 2024, bringing them to 3.75% by December.

Impact on lending rates and the financial market
Immediately after the Bank of Canada's rate cut, the country's largest commercial banks, including RBC, TD, BMO and others, cut their prime lending rates to 6.70% from 6.95%. These rates affect interest rates on adjustable-rate mortgages and lines of credit, which can support borrowers in times of economic instability. However, cutting rates too quickly can lead to rising prices or overextended housing markets, which requires a cautious approach from the Bank of Canada. Therefore, the Bank of Canada continues to adhere to a flexible policy, seeking to find a balance between supporting economic growth and controlling inflation, which has an impact on the entire financial sector of the country.

Prepared by Olga Balaur