Following First Rate Cut, BoC Governor Comments on inflation, Soft Landing

At his press conference on Thursday, BoC’s Governor Tiff Macklem reiterated that decisions on interest rates will be on a meeting-by-meeting basis.

The USD/CAD pair climbed to four-day tops past the 1.3700 mark as investors continue to assess the BoC’s rate decision, while Toronto stocks (TSX index) rose after the bank indicated that further easing was likely if inflation continued to decline.

The Bank of Canada (Boc) matched consensus and reduced its policy rate by 25 bps to 4.75% at its event on Wednesday. As it anticipates a soft landing, the Bank of Canada reduced interest rates, becoming the first central bank within the Group of Seven to begin an easing cycle.

In the statement, the bank argued that with ongoing evidence that underlying inflation is easing, monetary policy no longer needs to be as restrictive. In additon, three-month measures of core inflation indicate a continued downward trend in CPI.

Furthermore, Governor Tiff Macklem mentioned that it is reasonable to expect more rate cuts if inflation continues to ease. He added that rate decisions are being taken one meeting at a time and that, with the economy experiencing excess supply, Macklem noted there is room for growth even as inflation continues to recede.


Key Quotes

With continuing evidence that underlying inflation is easing, monetary policy no longer needs to be as restrictive.

Recent data have increased our confidence that inflation will continue to move towards the 2% target; risks to the inflation outlook remain.

Shelter price inflation remains high.

Wage pressures remain but look to be moderating gradually; overall, recent data suggest the economy is still operating in excess supply.

The governing council is closely watching the evolution of core inflation.

The governing council is particularly focused on the balance between demand and supply, inflation expectations, wage growth, and corporate pricing behavior.

Three-month measures of core inflation suggest continued downward momentum in CPI.

The timing of any further cuts will depend on data. The economy does not need the policy to be as restrictive.

Our forecast sees inflation easing towards the BoC’s target. What happens in the US has an impact on Canada.