The Bank of Canada announced a reduction in its key interest rate on Wednesday to about 4.75%, by a quarter of a percentage point, according to the new announcement made by the bank.
Interest rates in Canada were cut in line with economists' expectations
It is worth noting that the interest rate cut from the Bank of Canada was expected by many economists, in addition to the fact that this interest rate cut is considered the first since the central bank tightened monetary policy in March of 2022.
Core inflation rate
It should be noted that Statistics Canada indicated last month that the core inflation rate fell to 2.7% last April.
Accordingly, the Bank of Canada interest rate has been set at 5% since July 2023, and reports indicate that Tiff Macklem is expected to hold a press conference in the near future in order to talk about this decision to the media.
Investors watch
Reports indicate that investors are currently awaiting the release of the main interest statement of the Monetary Policy Committee at the Bank of Canada, in order to obtain a clearer view of the Bank of Canada’s decisions and the country’s economic situation.
This decision is expected to have a very strong impact on the Canadian dollar's trading against other currencies.
Traders await interest rate changes
It is also worth noting that traders are currently awaiting changes in interest rates, given that the Bank of Canada makes the interest decision related to the overnight financing rate for lending and borrowing among major financial institutions in Canada.
It should also be noted that short-term interest rates are what measure the value of the currency. Whenever interest rates rise and exceed expectations, this is positive for the Canadian dollar, while if interest rates fall more than expected, it negatively affects the Canadian dollar.
Stability of the dollar price
It is worth noting that the Canadian dollar embraced the middle of a months-long range at 1.3678 Canadian dollars to the dollar - as did the euro at $1.0881 - and in both meetings the expectations will be in focus at least as much as the decision.
The yen fell about 0.4 percent to 155.56 yen to the dollar in calm Asian markets, retreating from some of the gains it achieved overnight thanks to investors abandoning their bets in emerging markets.
Bank of Canada 2024 Interest Statement
- Today the Bank of Canada changed its target for the overnight interest rate to 4.75%, the bank rate to 5% and the deposit rate to 4.75%.
- The Bank of Canada keeps following its balance sheet normalizing approach.
- Following stalling in the second half of last year, the economy started to pick back up in the first quarter of 2024.
- First quarter GDP growth of 1.7% fell short of what the monetary policy report had projected.
- Weak investments slowed down economic growth; consumption grew at about 3%; business investment and house activity rose.
- Labor market statistics demonstrate that businesses are still hiring, even if for the working-age population employment is rising more slowly.
- Though they still persist, wage pressures seem to be progressively relieving.
- Recent figures point to the economy continuing running in surplus supply overall.
- In April CPI inflation dropped even more to 2.7%, and the Bank of Canada's preferred core inflation estimate likewise decreased.
- Three-month averages show ongoing declining trend in inflation rates.
- Indicators of price increase in the CPI components trended further down and got near to their historical average. Still, shelter price inflation still somewhat high.
- The Bank of Canada's Monetary Policy Committee decided that monetary policy no longer has to be as tight given further proof of a drop in core inflation.
- Trends in inflation led the Bank of Canada to decide to cut interest rates by 25 basis points.
- Though there are always hazards to inflation expectations, recent statistics have raised the Bank of Canada's confidence that inflation will keep moving towards the 2% objective.
- While still mostly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and business pricing behavior, the Bank of Canada regularly tracks the evolution of core inflation.
- The Bank of Canada is adamant about its will to bring about national pricing stability.
- About in line with Bank of Canada's April monetary policy announcement, the global economy expanded by roughly 3% in the first quarter of 2024.
- The United States' economy grew steadily but slowed down as weak exports and inventories affected activity and development in private domestic demand remained strong but slowed.
- In the euro region, first quarter 2024 activity recovered.
- Supported by exports and industrial activity, China's economy was also stronger in the first quarter; domestic demand remained weak. While progress toward price stability is erratic and moves at varying rates across countries, inflation keeps declining in most developed nations.
- Average oil prices are somewhat similar to Bank of Canada's projection, and since April financial situation have not changed much.
