The Bank of Canada (BoC) has lowered its key interest rate to 4.25 per cent, its third rate cut of the year.

In June, the Bank dropped the interest rate from a longstanding 5 per cent to 4.75 per cent. That move was the first in more than four years, following six rate holds.

Another quarter-point cut followed in July, bringing the rate to 4.5 per cent.

Bank of Canada reduces policy rate by 25 basis points to 4¼%https://t.co/uHhIUl9KiS#economy #cdnecon

— Bank of Canada (@bankofcanada) September 4, 2024

"With continued easing in broad inflationary pressures, the Governing Council decided to reduce the policy interest rate by a further 25 basis points," the BoC stated in a release on Wednesday morning.

"Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up."

It added that the Governing Council is "carefully assessing these opposing forces on inflation."

"Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook. The Bank remains resolute in its commitment to restoring price stability for Canadians," it concluded.

The next interest rate announcement is expected on October 23, 2024.

More cuts expected from BoC

Canada is quickly moving towards its 2 per cent Consumer Price Index target. Promising inflation data from the U.S. also supports the possibility of further cuts.

On August 20, Statistics Canada published the July Consumer Price Index, showing that inflation had decelerated to 2.5 per cent, down from 2.7 per cent in June.

Plus, the U.S. released July CPI on August 14, showing that inflation has slowed to 2.9 per cent. Since both countries are so deeply tied together, such economic patterns in the U.S. have historically replicated themselves in Canada, and that's the expectation again.

Ratehub.ca mortgage expert Penelope Graham said she believes we could see a rate of 3.75 per cent by the end of the year.

"The latest inflation numbers, both out of Canada and the U.S., have cemented expectations for rate cuts to continue at each of the remaining Bank of Canada announcements in 2024 and well into 2025," she stated in an email.

"Three more quarter-point cuts totalling 0.75 per cent will bring the Overnight Lending Rate to 3.75 per cent by the end of the year, its lowest since December 2022."