The highly anticipated, long awaited, often
debated, and much desired Bank of Canada rate cut has been delivered.
At its last setting the central bank trimmed 25
basis points off its benchmark, overnight policy rate dropping it to
4.75%. The Bank had held at 5.0% six
times. It is the first cut since the
Bank started its inflation fighting, hiking cycle back in March of 2022.
The cut is relatively small but it sends a
pretty big signal that the BoC has confidence that its plan is working. The Consumer Price Index fell to 2.7% in
April, down from 3.4% in December.
“If inflation continues to ease, and our
confidence that inflation is headed sustainably to the 2.0% target continues to
increase, it is reasonable to expect further cuts to our policy interest rate,”
said Bank Governor Tiff Macklem.
“But we are making our interest rate decisions
one meeting at a time,” he added.
Macklem specifically mentioned shelter price
inflation (home prices, mortgage costs and rent) as a potential sticking
point. There are concerns that falling
interest rates could release some of the pent up demand in the housing market,
fueling price increases.
However, most analysts do not expect a
quarter-point cut will trigger a flood of buyers pouring into the market.
The broad expectation is the Bank will hold at
4.75% for its July setting, with good potential for another cut in September
and, probably, one more by the end of the year.