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  • Writer's pictureDave Hall

Bank of Canada Cuts Interest Rates for the First Time Since 2022

The Bank of Canada made a significant policy shift on Wednesday by cutting interest rates for the first time since launching a historic hiking cycle in March 2022. This move marks a pivotal change in the central bank's approach to managing inflation and could signal more rate cuts in the near future.

The central bank lowered its overnight rate by 25 basis points to 4.75%, down from the 5% level that had been in place since July 2023. This decision was driven by evidence that underlying inflation is easing, suggesting that monetary policy no longer needs to be as restrictive. The Bank of Canada expressed increased confidence that inflation will continue to move toward its 2% target.

Bank of Canada Governor Tiff Macklem emphasized the progress made in controlling inflation, noting that it is welcome news for Canadians who have struggled with higher costs and rising interest rates over the past couple of years. "We’ve come a long way in the fight against inflation," Macklem said during a news conference.

Financial markets had anticipated this rate cut after six consecutive holds, and they are now expecting further reductions in the coming months. Arlene Kish, director of Canadian economics at S&P Global Market Intelligence, predicts that there could be two more 25-basis-point cuts this year, potentially bringing the overnight rate down to 3% by the end of 2025.

Macklem indicated that while additional rate cuts are possible if inflation continues to ease, the central bank will take a cautious approach, making decisions on a meeting-by-meeting basis. The goal is to avoid reversing the progress made in controlling inflation without being overly restrictive.

This rate cut sets the Bank of Canada on a different path from the U.S. Federal Reserve, which is not expected to begin cutting rates before September. As the Bank of Canada navigates this new course, it will continue to closely monitor inflation, economic growth, and other key indicators to support the Canadian economy.


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