Bank of Canada cuts interest rates after 4 years
The Bank of Canada (BoC) made the first interest rate cut in 4 years by reducing the policy rate from 5 percent to 4.75 percent, in line with expectations.
In the statement made by the BoC, it was stated that inflation continues to decline in most developed economies, but the progress towards price stability is uneven and at different speeds across regions.
In the statement, it was pointed out that consumer inflation in Canada decreased further, falling to 2.7 percent in April, and it was noted that the Bank of Canada’s preferred inflation criteria showed that the downward momentum continued.
In the statement, it was stated that with the ongoing evidence that inflation is decreasing, the BoC council agreed that monetary policy no longer needs to be so restrictive, and the policy interest rate was reduced by 25 basis points to 4.75 percent.
In the statement, it was stated that the latest data increased the confidence that inflation would continue to move towards the 2 percent target, but that risks to the inflation outlook continued.
In the statement, it was stated that the Council closely monitors the development of core inflation and continues to focus especially on the supply-demand balance in the economy, inflation expectations, wage increases and corporate pricing behavior.
“If inflation continues to decline, it is reasonable to expect further interest rate cuts.”
In the press conference he held regarding the monetary policy decision, BoC President Tiff Macklem pointed out that they have come a long way in the fight against inflation.
Pointing out that restrictive monetary policy works to alleviate price pressures, Macklem stated that they have more and sustainable evidence that inflation is decreasing, so monetary policy no longer needs to be so restrictive.
“If inflation continues to decline and our confidence that inflation is sustainably moving towards the 2 percent target continues to increase, it is reasonable to expect further cuts to our policy rate,” Macklem said. he said.
Emphasizing that they do not want monetary policy to be more restrictive than necessary in order to return inflation to the target, Macklem pointed out that they could jeopardize the progress made if the policy rate is reduced too quickly.
BoC started tightening monetary policy 2 years ago
Inflation in Canada reached the highest level in the last 40 years at 8.1 percent in 2022, and the BoC increased interest rates a total of 10 times after March 2022 to return inflation to the target.
BoC, which last increased interest rates at its meeting in July 2023, raised the policy rate to 5 percent, the highest level in 22 years.
The bank, which did not change the policy interest rate in September, October and December last year, kept the interest rate constant in its meetings in January, March and April this year.
Today, BoC made its first interest rate cut in 4 years by reducing the policy rate to 4.75 percent, in line with expectations. The bank also became the first central bank among the G7 countries to start easing policy after aggressive interest rate hikes to rein in inflation.