Bank of Canada cuts key interest rate for first time since 2020

For the first time in four years, Canada’s central bank is cutting its key interest rate.

On Wednesday, the Bank of Canada announced its key interest rate is dropping from five per cent down to 4.75 per cent. The move marks a turning point in the bank’s ongoing fight against high inflation.

According to the central bank, CPI inflation dropped to 2.7 per cent in April, and other indicators were also showing positive signs.

“The Bank’s preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum,” the bank said in a statement.

READ MORE:

• Bank of Canada holds key interest rate steady at five per cent
• Canadians feel grocery inflation getting worse, two in five boycotting Loblaw: poll
• Statistics Canada says removing carbon tax helped drop Sask. inflation rate

“With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points.”

The move was widely predicted by economists, who were seeing signs that the bank’s high interest rate was stalling economic growth and were also keeping a close eye on the slowing inflation rate.

Tiff Macklem, the bank’s governor, said he’s now more confident that inflation is heading in the right direction, towards the bank’s two per cent target. Macklem hinted that the policy rate could drop further if inflation continues to ease, but the bank noted that risks to the inflation outlook remain.

The bank’s next announcement on the overnight rate target is set for July 24, along with the Bank of Canada’s full outlook on inflation and the economy.

–with files from The Canadian Press