Bank of Canada Cuts Rates, Signals Potential G-7 Trend

The Bank of Canada has cut its main interest rate to 4.75%, potentially sparking a G-7 monetary easing cycle.
Bank of Canada Cuts Rates, Signals Potential G-7 Trend

Key Takeaways

  • Bank of Canada cuts interest rate to 4.75%.
  • Further rate cuts are possible if inflation eases.
  • European Central Bank might follow with a similar rate cut.

The Bank of Canada has reduced its main interest rate by 0.25 percentage points, lowering the target for the overnight rate from 5% to 4.75%, where it had remained for almost a year.

Bank of Canada Governor Tiff Macklem highlighted the possibility of additional reductions, stating:

If inflation continues to ease, and our confidence that inflation is headed sustainably to the 2% target continues to increase, it is reasonable to expect further cuts to our policy interest rate.

This move follows a series of rate hikes totaling 4.75 percentage points over 16 months, aimed at curbing inflation from a peak of 8.1% in June 2022. These aggressive increases have strained Canada’s economy, given its high levels of household and corporate debt and reliance on housing market growth.

The economic impact has been widespread, particularly affecting mortgages due for renewal at higher rates. With approximately CAD 700 billion in mortgages needing renegotiation in the next two to three years, significant challenges loom for economic activity and the job market.

Attention is now on the European Central Bank, which may follow with a rate cut, while the U.S. Federal Reserve is expected to maintain current rates, with market speculation of a possible cut by September.

This rate cut is seen as a potential boost for risk assets, including Bitcoin, which was trading at $70,500 at the time of the announcement. The Bank of Canada’s decision may signal a shift in monetary policy among developed economies.

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