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Bank of Canada (BoC) Governor Tiff Macklem has indicated the possibility of faster interest rate cuts in the near future, according to an interview with the Financial Times published on Sunday. This comes amid growing concerns about the state of Canada’s labor market and the potential impact of declining oil prices on the economy.
Macklem explained that as the central bank nears its inflation target, the focus of monetary policy shifts. “As you get closer to the target, your risk management calculus changes,” Macklem told the Financial Times. “You become more concerned about the downside risks, and the labor market is pointing to some of those risks.”
The BoC has kept its key policy rate at 5%, the highest in over two decades, for a year. However, since June, the central bank has gradually reduced rates, implementing three consecutive quarter-point cuts. This has brought the rate down by 75 basis points to its current level of 4.25% as of earlier this month.
In July, inflation in Canada dropped to a 40-month low of 2.5%, providing some relief to policymakers. Despite signs of economic recovery, Macklem cautioned that downside risks could hinder the anticipated growth, highlighting concerns about potential disruptions to trade.
“Trade disruptions may lead to larger deviations from the 2% inflation target,” Macklem stated in a recent address to the Canada-UK Chamber of Commerce in London. The central bank remains attentive to these risks as it navigates the path toward economic stability while aiming to keep inflation in check.
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