The Bank of Canada has on Wednesday cut interest rates by a quarter of a percentage point, making it the first Group of Seven central bank to herald an easing cycle. Policymakers led by Governor Tiff Macklem decided to cut the benchmark overnight rate to 4.75 per cent on Wednesday, as widely expected by markets and economists as per a Bloomberg survey. Officials say they are more confident that inflation is headed to the 2 per cent target, and said it is "reasonable to expect further cuts," if progress continues. "We're confident inflation is headed towards our 2 per cent target," stated Macklem, emphasising the potential for additional rate reductions. The Bank acknowledged that the easing path hinges on sustained inflation control, noting potential risks like global tensions and wage growth. This marks the Bank's first rate cut since 2020 and signifies a shift from aggressive rate hikes implemented last year. Canada's inflation has fallen to 2.7 per cent, down from its peak in mid-2022, allowing for a gradual normalisation of interest rates. Financial experts like Royce Mendes of Desjardins Securities highlight the swiftness of this policy shift compared to previous cycles. "This time, the central bank is aiming for a soft landing by acting pre-emptively," Mendes explains. He emphasises the Bank's proactive approach in managing risks and guiding the economy. The Bank of Canada's decision precedes the European Central Bank's (ECB) expected rate cut tomorrow. This move positions Canada as the G7 leader in transitioning towards a less restrictive monetary policy, joining other nations like Switzerland and Sweden to pivot to easier monetary policy as inflation risks subsided.
