The Bank of Canada has made significant strides in reducing inflation to its 2% target, leading Governor Tiff Macklem to suggest that further rate cuts may be on the horizon. This statement was made on Tuesday, following the release of data indicating that the consumer price index dropped to 2% in August, marking the lowest level since February 2021. The bank's objective is to maintain inflation around the midpoint of a 1%-3% target range.

Macklem's remarks indicate a shift in perspective, as he had previously stated that additional rate cuts would be likely if progress against inflation continued. On Tuesday, he emphasized that the bank has already met several of its key objectives.

"Given the ongoing progress in inflation, it is reasonable to anticipate additional reductions in our policy rate," he stated during a conference in Toronto. "The timing and magnitude of these cuts will depend on incoming data and our interpretation of its implications for future inflation."

The consistent decline in consumer prices since the start of the year prompted the Bank of Canada to initiate rate cuts in June, resulting in a total reduction of 75 basis points, bringing the benchmark borrowing rate down to 4.25%.

The next announcement regarding monetary policy is scheduled for October 23, with money markets indicating a greater than 58% probability of a substantial 50 basis point cut. Additionally, a further 25 basis point reduction is anticipated during the final meeting of the year in December.

"We are pleased to see inflation return to the 2% target after a lengthy process," Macklem remarked. "Our goal now is to keep inflation near the center of the 1%-3% inflation-control band. We must ensure a successful transition."

Macklem also reiterated the bank's desire to see economic growth increase to effectively utilize existing economic capacity.

In August, key core price indicators experienced a decline, reaching their lowest point in 40 months.

"We will be monitoring for further reductions in core inflation, which remains slightly above 2%," Macklem stated.

Macklem reiterated his worries that recent data indicated a slowdown in growth, emphasizing that the bank would be vigilant regarding consumer spending, as well as business hiring and investment, as indicators of economic performance.

Economists predict that growth in the third quarter is expected to be around half of the 2.8% forecasted by the Bank of Canada.