Bank of Canada Cuts Key Interest Rate to 4.75%,
Marking First Reduction Since 2020
Los Angeles/Dec 30, 2024
NRIpress.club/Ramesh/ A.Gary Singh
The Bank of Canada has announced a reduction in its key interest rate to 4.75 percent, the first rate cut since March 2020.
Governor Tiff Macklem explained that the decision reflects the easing need for restrictive monetary policy. “We’ve made significant progress in combating inflation, and our confidence in reaching the two percent target has grown in recent months,” Macklem stated.
This decision was widely expected by economists, as the inflation rate nears the bank’s two percent goal, recording 2.7 percent in April. Core measures of inflation also showed consistent easing throughout the spring.
Macklem cited stronger confidence in achieving the inflation target and weaker-than-expected GDP growth—a modest 1.7 percent in the first quarter—as key factors in the rate cut.
After a period of aggressive interest rate hikes, the Bank of Canada last raised the rate to five percent in July 2023, holding it there until this latest adjustment.
Macklem emphasized a measured approach, cautioning against rapid rate reductions: “We don’t want monetary policy to be overly restrictive, but lowering rates too quickly could jeopardize our progress against inflation.”
Royce Mendes, head of macro strategy at Desjardins, highlighted the significance of the move, noting that the Bank of Canada is the first G7 central bank to lower rates. He warned that maintaining high rates for too long could push the economy into an unnecessary recession, especially with many homeowners set to renew their mortgages soon.
CIBC economist Andrew Grantham agreed, suggesting that with slowing core inflation and subdued growth, it was prudent to start easing rates now. Grantham anticipates another 25 basis point cut at the next meeting on July 24, followed by further reductions by year’s end.
Tu Nguyen, an economist at RSM Canada, described the move as the start of a gradual rate reduction cycle expected to span the next 18 months. She projects full economic recovery by 2025.
For individuals like Joseph Hopkinson, a Toronto sales consultant with a variable-rate mortgage, the rate cut offers meaningful relief. Hopkinson, whose monthly mortgage payments surged from $3,600 to $5,793, shared how his family adapted by cutting back on discretionary spending. “We’ve had to be much more deliberate about our spending, which I think aligns with the Bank of Canada’s intent,” he told CBC News.
The rate cut is expected to lower his family’s monthly mortgage payment by approximately $142, a noticeable difference that equates to a week’s worth of groceries for his family of four.
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