Bank of Canada cuts key interest rate to 4.75%
The Bank of Canada has lowered its key interest rate to 4.75 per cent, marking the bank’s first rate cut since March 2020.
Bank governor Tiff Macklem said in opening remarks that the bank’s monetary policy no longer needs to be as restrictive.
“We’ve come a long way in the fight against inflation. And our confidence that inflation will continue to move closer to the two per cent target has increased over recent months,” Macklem said.
Economists were largely expecting the move. The inflation rate has moved closer to the bank’s two per cent goal in recent months, coming in at 2.7 per cent in April, with the bank’s preferred core measures of inflation also easing throughout the spring.
Bank of Canada governor Tiff Macklem said confidence that inflation would move closer to the bank’s two per cent target has increased in recent months, as he outlined the reasons behind the move to trim the bank’s key interest rate to 4.75 per cent.
Meanwhile, quarterly GDP numbers released last week were weaker than expected: the economy grew by 1.7 per cent during the first three months of the year, increasing the likelihood of a cut.
After a cycle of aggressive interest rate hikes, the Bank of Canada last hiked the rate to five per cent in July 2023 and held it there until Wednesday’s cut.
RBC, Scotiabank, BMO, TD Bank and CIBC had cut their prime lending rates to 6.95 per cent from 7.20 per cent as of 3 p.m. ET on Wednesday.
Lowering rates too quickly could jeopardize progress: Macklem
But Macklem stressed that the Bank of Canada is going to take things “one meeting at a time.”
Canadians can reasonably expect more cuts so long as inflation continues to ease, and the bank maintains its confidence that inflation is steadily approaching the bank’s two per cent goal, Macklem said.
“We don’t want monetary policy to be more restrictive than it needs to be to get inflation back to target. But if we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made,” he said.
Bank of Canada governor Tiff Macklem, when asked if Canadians can expect to see a further interest rate cut next month, says the timing will depend on incoming data and what that information means for the future path of inflation.
“It’s a small cut, but I think a grand gesture,” said Royce Mendes, managing director and head of macro strategy at Desjardins. He noted that the Bank of Canada is the first of the G7 central banks to begin cutting rates.
With many homeowners set to renew their mortgages in the next few months, “if the bank had left interest rates high for too long, we could have tipped the economy into an unnecessary recession,” he noted.
“They want to get rates down, but…