Bank of Canada announces first rate cut since March 2020

'We’ve come a long way in the fight against inflation,' said Tiff Macklem, Governor of the Bank of Canada. 'And our confidence that inflation will continue to move closer to the 2 percent target has increased over recent months.'

Bank of Canada announces first rate cut since March 2020
THE CANADIAN PRESS/Justin Tang
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The Bank of Canada on Wednesday lowered its benchmark interest rate by a quarter-percentage point, with the policy rate now standing at 4.75 percent.

The drop comes after six consecutive holds.

The key rate informs the cost of borrowing widely in Canada, an important factor for Canadians paying their mortgages and other loans.

Homeowners with variable-rate mortgages and Canadians with debt tied to the central bank's policy rate will see interest rates drop by 25 basis points.

Bank of Canada Governor Tiff Macklem said in a statement on Wednesday that he believes the announcement will be "welcome news" to Canadians.

“We’ve come a long way in the fight against inflation,” he said. "And our confidence that inflation will continue to move closer to the 2 percent target has increased over recent months.”

Inflation was at 2.7 percent in April, down .2 from March. The first quarter of 2024 saw the economy grow by 1.7 percent, below the bank's forecast.

In April, employment saw an increase of 90,000, primarily fueled by part-time positions. Although employment growth hasn't matched the pace of the working-age population, it has helped bridge the gap between the number of workers and job openings, leading to a slight wage pressure to ease up.

Macklem did warn, however, that risks to the inflation forecast remain. He said that any decision regarding additional rate cuts will be taken on one meeting at a time.

“But if we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made,” said Macklem. “Further progress in bringing down inflation is likely uneven and risks remain.”

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