The Bank of Canada cut its key interest rate by 0.25 percentage points to 4.25% for the third time in a row on Sept. 4. Bank Governor Tiff Macklem said it could adjust the pace of interest rate cuts if economic data dictated it.

“If inflation is stronger than we expected, or if there’s significantly less weakness in the economy than we assess, yes, it might be appropriate to slow the pace of rate cuts,” Macklem said.

“On the other hand, if the economy is significantly weaker, if inflation is significantly weaker than we expected, yes, it might be appropriate to take a larger step, something larger than 25 basis points.”

The Canadian economy grew faster than expected in the second quarter, but preliminary data pointed to weak activity in June and July. Macklem said that suggests growth could be weaker than the Bank of Canada had forecast.

Macklem reiterated that if inflation continues to decline as expected, it is “reasonable” to expect further rate cuts. Canada’s annual inflation rate has been below 3 percent for months now, hitting 2.5 percent in July.

TD Chief Economist Beata Caranci says the quarter-point rate cut was the right call, given that the economy is still sending mixed signals.

But she says downside risks are the bigger concern for the Bank of Canada, meaning there is a greater chance that inflation will fall more than expected, rather than less.

“We are starting to see some cracks forming in the labor market and on the consumer side,” Caranci said. “And inflation, at two and a half, is broadly in line with target; we are already starting to see a 50 basis point (0.50%) cut.”

While experts say the Bank of Canada’s previous two rate cuts have done little to stimulate the housing market, opinions are divided on how much the latest rate cut will boost activity.

After the third rate cut in a row, some experts agree that the Bank of Canada’s cumulative 0.75% rate cut could “start to encourage” buyers to reenter the housing market. The previous two rate cuts in June and July had little impact on housing demand as potential buyers waited for the Bank of Canada to provide a path forward.

Phil Soper, president and CEO of Royal LePage, emphasized in an interview with Bloomberg that home values ​​have largely stabilized this year, with lower borrowing costs improving affordability. He added that buyers today will be more careful about whether to buy now or wait in the current market.

“Once the waiting list gets out there, the pent-up demand will push prices higher. This fall, we can expect some Canadians to take the plunge, while those who are more risk-averse may want to wait for rates to fall further,” Soper said.

Such a decision could cost buyers the opportunity to buy at a lower price, without a bidding war, and at a more attractive price today.

The Bank of Canada’s next interest rate announcement is scheduled for October 23.

By Olga Balaur