Bank of Canada Lowered its Interest Rate by 25 Basis Points and Here is Why

• Bank of Canada cut its overnight rate by 0.25 percentage points to 4.75%
• It became the first G-7 economy to ease monetary policy in the current rate cycle
• The central bank cited easing inflation and increased confidence it will continue moving towards the 2% target as reasons for the rate cut

The Bank of Canada on Wednesday cut the target for its overnight rate by 25 basis points, or a quarter of a percentage point, to 4.75%, becoming the first Group of Seven country to ease policy in the current rate cycle.

Context for the Rate Cut

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. Recent data has increased our confidence that inflation will continue to move towards the 2% target, the bank said in a statement.

The move was widely expected. The central bank cited a further easing in the country’s consumer inflation measure to 2.7%, as well as a slowing in the core measure of inflation and three-month readings that suggested further downward momentum.

The European Central Bank is widely expected to deliver a quarter-point rate cut on Thursday.

Impact on the Canadian Dollar

Canadian Dollar (USDCAD) fell following the rate cut announcement.

Outlook Going Forward

The Bank of Canada will continue to monitor economic data and inflation trends closely to determine if further rate adjustments are needed to support the economy while keeping inflation in check. The rate cut signals a shift toward more accommodative monetary policy