Canada lowers interest rates

Canada (Commonwealth)_The Bank of Canada announced the first rate reduction since March 2020 when it dropped its benchmark interest rate to 4.75 percent. In his first remarks, bank governor Tiff Macklem stated that the bank’s monetary policy was no longer necessary to be as stringent.

In the battle against inflation, we’ve made significant progress. Furthermore, we are more optimistic now than we were a few months ago that inflation will keep approaching the two percent objective,” Macklem added.

Most economists had anticipated the change. The bank’s targeted core measures of inflation have also eased, and the inflation rate has recently approached its two percent target, coming in at 2.7% in April. As he explained the rationale for the decision to lower the Bank of Canada’s main interest rate to 4.75 percent, governor Tiff Macklem stated that confidence that inflation will approach the bank’s two percent objective has grown in recent months.

In the meanwhile, last week’s quarterly GDP figures were less encouraging than anticipated; the economy expanded by 1.7% in the first three months of the year, raising the possibility of a decrease. The Bank of Canada last raised interest rates to 5% in July 2023 following a run of aggressive rate rises, and it remained there until Wednesday’s reduction.

The prime lending rates of RBC, Scotiabank, BMO, TD Bank, and CIBC were lowered from 7.20 to 6.95 percent as of Wednesday at 3 p.m. ET. Reducing rates too soon could compromise advancement, Macklem said.  He, however, emphasized that the Bank of Canada will handle matters “one meeting at a time.”

As long as inflation is low and the bank remains confident that inflation is gradually moving closer to its two percent target, Macklem added, Canadians should expect to see additional decreases. “In order to bring inflation back to goal, we don’t want monetary policy to be more stringent than necessary. However, we risk compromising the gains we’ve gained if we cut our policy interest rate too soon,” he stated.

When asked if Canadians could anticipate another interest rate reduction next month, Governor of the Bank of Canada Tiff Macklem responded, the timing will be determined by newly released statistics and the implications for inflation’s future trajectory, he noted.

“It’s a small cut, but I think a grand gesture,” Desjardins managing director and head of macro strategy Royce Mendes remarked. He pointed out that the first central bank among the G7 to start lowering rates is the Bank of Canada. He pointed out that if the bank had kept interest rates high for an extended period of time, we may have pushed the economy into an avoidable recession, as many homeowners are scheduled to renew their mortgages in the coming months.

They want to lower rates, but they will do so gradually, and we anticipate a less dramatic rate-cutting cycle than in previous decades, since there isn’t a recession right now. Right now, we’re attempting to repel one.  In a note to clients, CIBC economist Andrew Grantham stated that there was no clear reason to delay lowering rates today, given the slowdown in core inflation and the sluggish growth in the economy.

At its upcoming meeting on July 24, he anticipates the Bank of Canada will drop interest rates by an additional 25 basis points. Before the year is out, there will be two more rate cuts. A single rate drop won’t instantly boost the economy, according to RSM Canada economist Tu Nguyen.

However, she said that it “signals the beginning of a gradual and orderly rate cut cycle to consumers and businesses that will transpire throughout the ensuing 18 months. Recovery can start right now and pick up speed by 2025.”

In June 2022, Joseph Hopkinson, a resident of Toronto, and his spouse purchased a semi-detached home. Their monthly variable mortgage payment, which was $3,600 at the time, has subsequently risen to $5,793.

For those with variable rate mortgages, such as Toronto sales consultant Joseph Hopkinson, 41, the rate reduction is good news. In June 2022, Hopkinson and his spouse purchased a semi-detached home. Their monthly variable mortgage payment, which was $3,600 at the time, has subsequently risen to $5,793.