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Bank of Canada cuts key rates by 0.25%

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2024-06-06

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The Bank of Canada cut its key rates by 0.25%, joining central banks in Sweden and Switzerland, and ahead of the European Central Bank, which is widely forecast to cut by a similar amount on Thursday.

The Bank of Canada lowered its key overnight rate cut to 4.75%, with the Bank Rate at 5% and the deposit rate at 4.75%.

Governor Tiff Macklem said in opening remarks that the bank's monetary policy no longer needs to be as restrictive.

"We've come a long way in the fight against inflation. And our confidence that inflation will continue to move closer to the two per cent target has increased over recent months," Macklem told a media conference.

The move had been widely expected as Canada’s inflation rate has moved closer to the bank's 2% goal in recent months, coming in at 2.7% in April, with core measures of inflation also easing throughout the spring.

Now it's the turn of the ECB to cut, and it will be the first reduction since September 2019.

It will mark the official end to the record fast-hiking cycle that began after the Covid-19 pandemic as inflation surged.

“Judging by the commentary from officials, there is no questioning of the wisdom of cutting rates on 6 June,” said Mark Wall, an ECB watcher with Deutsche Bank, told media.

“Even with the upside surprise on May HICP [harmonized index of consumer prices], the ECB can argue a cut is consistent with its reaction function. The question is, what comes after June?”

The cut will come even though inflation for May came in slightly higher than expected, with headline inflation at 2.6% and core inflation at 2.9%. On top of that, negotiated wage growth — a figure closely watched by the ECB — did reaccelerate in the first quarter to 4.7% after hitting 4.5% in the fourth quarter of 2023.

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