Top Bank of Canada officials speak after latest interest rate cut

TORONTO (Reuters) -Below are some key quotes from a news conference by Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers on Wednesday after the central bank cut its key policy rate by 25 basis points for the second month in a row. That brought it down to 4.5%, and the two said more cuts were likely if inflation continued to cool in line with forecasts.

MACKLEM ON EXCESS SUPPLY

"The economy is in excess supply. There is slack in the labour market and that is acting to pull inflation down. Our assessment is there's enough excess supply in the economy. The ingredients increasingly are in place to bring inflation back to the 2% target. We don't need more excess supply. We need growth to start picking up, we need job creation to start picking up, to absorb the excess supply in the economy and get inflation sustainably back to target."

ROGERS ON BALANCE SHEET

"We don't think we're at a normalized state on our balance sheet yet. We think there's more room to go on settlement balances, but as we do get closer to what we think is a normal state, we'll be paying very, very close attention. We're talking to market participants on a regular basis. So we'll be keeping an eye on this."

MACKLEM ON RATE CUT DECISION

"In terms of the decision, there was a clear consensus to cut by 25 basis points. There was clear consensus that the expected path of the policy rate is lower. But we're not on a predetermined path. We're going to take it one meeting at a time. That was really the main outcome of the meeting."

MACKLEM ON MONETARY POLICY

"Our assessment is monetary policy is still restrictive ... Inflation is still 2.7%, core inflation is about the same. We still need to get inflation down. So we still need monetary policy to be somewhat restrictive. We don't need to be as restrictive as it's been. We've made a lot of progress. We're confident that the ingredients are in place to get us back to target. It doesn't need to be as restrictive as it's been and that's why we've cut our policy rate at the last two meetings."

MACKLEM ON NOT WANTING TO WEAKEN ECONOMY TOO MUCH

"We want to balance the risks on both sides. We are determined to get inflation back to 2% but we also don’t want to weaken the economy too much and have inflation go below our 2% target. So those are all the things we’re going to be weighing going forward. We’re going to take it one meeting at a time."

MACKLEM ON POLICY DIVERGENCE

"There are limits to how far Canadian and U.S. rates diverge. We are still not close to that limit and with inflation showing more signs of easing in the United States, my sense is that divergence is not going to be particularly serious."

(Reporting by Fergal Smith, Anna Mehler Paperny and Ismail Shakil; Compiled by Fergal Smith)