The Bank of Canada has reduced its benchmark interest rate by 25 basis points (0.25%), bringing it to 4.75%, marking the first cut since March 2020. This move, anticipated by economists, comes in response to progress in lowering inflation, weaker-than-expected economic growth in the first quarter, and a slower increase in employment.

The central bank expressed confidence that inflation would continue to move towards its 2% target. Governor Tiff Macklem emphasized that monetary policy no longer needs to be as restrictive, citing improvements in the inflation rate. The inflation rate has been aligning closer to this goal, reaching 2.7% in April. Moreover, recent GDP figures showed slower-than-expected growth, at 1.7% for Q1, which supported the case for a rate cut.

Despite the cut, Macklem cautioned against lowering rates too quickly to avoid undermining progress in combating inflation. He indicated that Canadians could expect more rate cuts if inflation continues to ease and the bank remains confident in achieving its 2% target. The next interest rate announcement will be held on July 24.