The Bank of Canada in Ottawa, Ontario, Canada, on July 12, 2023. Canada’s central bank on July 12, 2023, raised its key interest rate by 25 basis points to five percent, its highest level since 2001. While the Bank of Canada acknowledged that global inflation was easing, it explained its decision — which was in line with analyst expectations — by saying: “Robust demand and tight labor markets are causing persistent inflationary pressures in services.” (Photo by Dave Chan / AFP)
Montreal, Canada — Canada’s central bank on Wednesday lowered its key lending rate to 4.5 percent, saying the second straight cut of 25 basis points was warranted due to slowing inflation.
Canada had held its benchmark rate steady for almost a year at 5.0 percent, the highest level in two decades, before initiating a cut in early June.
That reduction to 4.75 percent made it the first among the Group of Seven leading economies to ease monetary policy in the current cycle.
READ: Canada central bank cuts key lending rate, signals more ahead
“With broad price pressures continuing to ease and inflation expected to move closer to 2 percent, Governing Council decided to reduce the policy interest rate by a further 25 basis points,” the Bank of Canada said in a statement.
After an unexpected upturn in May, Canada’s annual inflation rate slowed to 2.7 percent 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 percent to 1.2 percent.
“As inflation gets closer to the 2% 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% by the end of 2024.”
The Canadian central bank’s next monetary policy meeting will take place on September 4.