Canada’s central bank on Wednesday lowered its key lending rate to 4.5 per cent, saying the second straight cut of 25 basis points was warranted due to slowing inflation.
The central bank had held its benchmark rate steady for almost a year at 5.0 per cent, the highest level in two decades, before initiating a cut in early June.
That reduction to 4.75 per cent made it the first among the Group of Seven leading economies to ease monetary policy in the current cycle.
“With broad price pressures continuing to ease and inflation expected to move closer to 2 per cent,” the Bank of Canada said in a statement, “Governing Council decided to reduce the policy interest rate by a further 25 basis points.”
After an unexpected upturn in May, Canada’s annual inflation rate slowed to 2.7 per cent year-on-year in June, the bank said, paving the way for Wednesday’s rate cut.
Although the modest cuts will not make borrowing significantly cheaper for Canadians, the end of the monetary policy tightening cycle is expected to breathe confidence into the economy.
The central bank, however, lowered its prediction for annual economic growth from 1.5 per cent to 1.2 per cent.
“As inflation gets closer to the 2 per cent target, the risk that inflation comes in higher than expected has to be increasingly balanced against the risk that the economy and inflation could be weaker than expected,” bank chief Tiff Macklem told reporters.
“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate,” Macklem said.
Claire Fan, an analyst at the Royal Bank of Canada, said she expected “two additional rate cuts this year—one at each meeting after today’s meeting that will lower the overnight rate to a still restrictive 4 per cent by the end of 2024.”
The Canadian central bank’s next monetary policy meeting will take place on Sep. 4.
