Bank of Canada cuts key interest rate for first time in more than four years

“But we are taking our interest rate decisions one meeting at a time.”

With the quarter-percentage-point cut, the central bank’s key interest rate now stands at 4.75 per cent.

The rate cut Wednesday opens a new chapter for the Bank of Canada, which has been preoccupied with wrestling inflation down over the last two years.

With inflation down significantly and the economy stalling, most forecasters believed it was the right time for the central bank to begin lowering borrowing rates.

The cut came as expected, said CIBC Capital Markets senior economist Andrew Grantham and was in line with economic data showing “there wasn’t a good excuse to not begin the process of moving rates lower today.”

Canada’s annual inflation rate has steadily declined in recent months, reaching 2.7 per cent in April. Measures of underlying price pressures have also eased, giving the central bank more confidence that inflation will continue to trend lower.

The Canadian economy has also weakened under the weight of high interest rates. Economic growth in the first quarter came in lower than forecasters expected, and the unemployment rate has steadily risen, reaching 6.1 per cent in April.

“While a single rate cut will not revive the economy overnight, it signals to consumers and businesses the beginning of a gradual and orderly rate cut cycle that will unfold over the next year and a half,” said RSM Canada economist Tu Nguyen in a note responding to the news.

“Recovery can begin now and hit full force in 2025,” she said.

The rate decision puts the Bank of Canada ahead of other central banks in the Western world in cutting interest rates, including the U.S. Federal Reserve.

Macklem is scheduled to hold a news conference Wednesday morning to discuss the central bank’s decision.

by Canadian Press

Bank of Canada cuts key interest rate for first time in more than four years

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