It's the long-awaited news for millions of Canadians. The Bank of Canada has brought an end to its historic cycle of interest rate increases by lowering its key rate for the first time since the onset of the COVID-19 pandemic.
The Bank of Canada has cut its key overnight rate by 25 basis points to 4.75%, the first reduction in four years. This decision comes after keeping rates steady at 5% since July 2023. The move, largely anticipated by markets, signals a shift towards more typical interest rate levels amidst persistent inflation pressures.
Despite the adjustment, monetary policy remains restrictive, with inflation rates consistently lower over the past year. Weaknesses in the labor market, including sluggish employment growth and easing wage pressures, are also highlighted.
The Bank foresees continued easing in price pressures due to excess supply in the economy, with headline CPI expected to reach the 2% target by 2025. Attention now shifts to the pace of further cuts, with decisions to be made on a meeting-by-meeting basis.
While the rate cut aims to alleviate borrowing costs for Canadian households, interest rates are expected to remain relatively high and restrictive. Policymakers express confidence in a downward trajectory for future inflation. Insights into housing, wage growth, and inflation will be gleaned from upcoming reports and surveys, with another 25 basis point cut anticipated in July.
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