For the first time since March 2020, Bank of Canada cuts Interest Rate! The key rate is now at 4.75%!
The Bank of Canada cuts Interest Rate for the first time since March 2020 and the now reduced key rate is at 4.75%. Bank governor, Tiff Macklem, stated 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 during announcement.
Economists anticipated this move as inflation has been nearing the bank’s two percent target, hitting 2.7% in April, and as the economy’s growth was slower than expected, with a 1.7% increase in GDP during the first quarter, supporting the decision for a rate cut.
After a series of major rate hikes, the last increase was to 5% in July 2023, which remained until this cut. Following the Bank of Canada’s decision, major banks like RBC, Scotiabank, BMO, TD Bank, and CIBC lowered their prime lending rates to 6.95% from 7.20%.
More Cuts on Rates?
Macklem emphasized that the Bank of Canada will proceed cautiously, taking it “one meeting at a time”, once that reducing rates too quickly could undermine the progress made against inflation. However, Canadians can expect more rate cuts if inflation continues to decline and moves closer to the 2% goal, Macklem explained.
“It’s a small cut, but a significant gesture. If the bank had left interest rates high for too long, we could have tipped the economy into an unnecessary recession”, said Royce Mendes, managing director and head of macro strategy at Desjardins.
CIBC economist, Andrew Grantham, mentioned that with decelerating core inflation and modest growth, there wasn’t a reason to not begin lowering the rates. He also predicts another 25 basis points cut at the next meeting on July 24, with two more cuts expected by year-end.