The Bank of Canada trimmed its key overnight lending rate on Wednesday, the first cut in more than four years.
The quarter-point reduction to 4.75% brings the policy rate down from its two-decade high where it had stubbornly remained since last July. The move was largely expected by analysts and economists after the national inflation rate continued to decline in April and first quarter economic growth was tepid.
“With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive. . . ,” the Bank said in its rate announcement today. “Recent data has increased our confidence that inflation will continue to move towards the 2% target.
The national inflation rate peaked in June 2022 at 8.1% but an aggressive rate-hiking campaign by the Bank eventually got the rate back under 3% by January of this year. The April inflation rate was 2.7%, down from 2.9% in March and closer to the Bank’s ideal target of 2%.
“We’ve come a long way in our fight against inflation,” said Bank of Canada Governor Tiff Macklem, during prepared remarks in Ottawa. “And our confidence that inflation will continue to move closer to the 2% target has increased over recent months.”
However, the Bank warned it is not declaring victory in the inflation fight just yet. The Bank said it is closely watching the evolution of core inflation and remains “particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”
The Bank will make its next rate announcement on July 24.
