- The Bank of Canada on Wednesday cut rates to 4.75 per cent
- The target for the overnight rate was reduced to 4¾ per cent, with the bank rate at 5 per cent and the deposit rate at 4¾ per cent.
- The central bank’s decision was influenced by a variety of factors, mainly the recent trends in inflation and the consumer price index (CPI)
- The April inflation rate, though still above the bank’s target range of 1 to 3 per cent, indicates a positive trend towards economic stability
As predicted by many, the Bank of Canada delivered its first rate cut in more than four years, a trim to 4.75 per cent at its Wednesday policy meeting.
In a media release, the Bank of Canada explained that it had reduced its target for the overnight rate to 4¾ per cent, with the bank rate at 5 per cent and the deposit rate at 4¾ per cent.
In his opening statement, the bank’s governor, Tiff Macklem said there was “[F]urther and more sustained evidence underlying inflation is easing, monetary policy no longer needs to be as restrictive.”
Investors have been eagerly anticipating the central’s bank’s move on its benchmark interest rate that is seen as a reflection of cautious optimism that inflation is now under enough control to allow for a slight easing of monetary policy.
The bank also noted that the global economy grew by about 3 per cent in Q1 2024, broadly in line with its April Monetary Policy Report projection.
In its fourth meeting this year, the bank’s decision was influenced by a variety of factors, primarily the recent trends in inflation and the consumer price index (CPI). Core measures of inflation, which strip out volatile prices, have steadily eased since the beginning of the year.
Most economists polled by Reuters expect three more cuts this year.
The April inflation rate, though still above the bank’s target range of 1 to 3 per cent, indicates a positive trend towards economic stability. The decline from March’s rate suggests the measures taken so far are having the desired effect on price stability.
Economists are also taking note of the overall economic environment, including employment rates and consumer spending patterns. Slower-than-expected economic Q1 growth supported these interest rate bets. Statistics Canada reported that the country’s GDP in March increased only 0.4 per cent in Q1 after posting no change in Q4 2023.
The agency also reported that its Industrial Product Price Index rose 1.5 per cent month over month in April and saw a year-over-year increase of 1.4 per cent.
Analysts are optimistic about Canada’s significant deceleration in price growth. The annual inflation rate for April was 2.7 percent, down from 2.9 percent in March, according to recent StatsCan data.
The central bank has maintained the benchmark interest rate at 5 per cent since July 2023, the highest it had been since 2001. This move was aimed at curbing inflation that had surged in the post-pandemic economy. Emerging from COVID, the bank began using rate hikes in March 2022 as an attempt to stabilize the economy.
This period of steady rates has seen a gradual but significant cooling in inflation.
For investors, the potential rate cut could signal a more accommodative monetary policy environment, which might boost market confidence and encourage investment in various sectors. Lower interest rates typically reduce borrowing costs for businesses and consumers, potentially leading to increased spending and investment.
The bank next meets to announce the overnight rate target on July 24, 2024.
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(Top photo: Bank of Canada)