Bank of Canada interest rate cut to give some borrowers relief

Businesses and consumers carrying debt under a variable rate should see some relief with the Bank of Canada’s decision to cut its policy rate today said Farm Credit Canada’s chief economist.

“Otherwise I don’t expect the decision today to have major implications for interest rates in financial markets,” said J.P. Gervais in a video posted to FCC’s YouTube channel today.

Today the Bank of Canada announced it would cut interest rates for the first time in four years.

The Bank of Canada trimmed its key policy rate on Wednesday to 4.75 per cent from a 23-year high of five per cent.

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Inflation is now running at 2.7 per cent, above the central bank’s two per cent target, but down from a high of 8.1 per cent in June 2022, Reuters reported.

The three-month annualized rate of inflation has, since the beginning of the year, fallen within the Bank of Canada’s target range of one to three per cent, Gervais said.

Going forward, the Bank of Canada will be closely monitoring to make sure that today’s decision doesn’t lead to inflation rising again, Gervais said. There will be two more inflation data points release before the bank’s decision in July.

“It doesn’t change anything to our forecast to see three rate cuts for all of 2024,” he added.

Canada is the first G7 country to cut interest rates. The European Central Bank is most likely to follow suit on Thursday, according to a Reuters poll.

U.S. inflation is stickier and markets expect the Federal Reserve will cut rates only once this year. Economists have questioned whether the BoC is running the risk of diverging too much from the Fed.

—With files from Reuters