The Bank of Canada reduced its main interest rate by 25 basis points to 4.75%, the central bank’s first rate cut in four years and the first rate cut this year enacted by a G7 nation.
“With further and more sustained evidence underlying inflation is easing, monetary policy no longer needs to be as restrictive,” said Governor Tiff Macklem in announcing the historic decision.
Despite the rate cut, the Bank of Canada warned that “risks to the inflation outlook remain.” The central bank also observed that the U.S. economy “expanded more slowly than was expected, as weakness in exports and inventories weighed on activity.”
Nonetheless, the rate cut follows the Bank of Canada’s recent acknowledgment of the deleterious impact of elevated rates on the nation’s housing market.
“After hitting historical lows during the pandemic, the share of households without a mortgage that are behind on credit card and auto loan payments has come back up to — or surpassed — typical levels,” said Senior Deputy Governor Carolyn Rogers. “And over the past year, the share of borrowers without a mortgage who carry a credit card balance of at least 80% of their credit limit has continued to climb.”
The Bank of Canada’s action follows recent rate cuts by the central banks in Switzerland, Sweden, Czechia and Hungary. The European Central Bank is widely expected to announce its own rate cut tomorrow and the Bank of England could possibly follow during its next policy meeting on June 20. However, the Federal Reserve leadership is not expected to enact its own cuts when the Federal Open Market Committee meets next week.
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