By Paul Vieira
OTTAWA--The Bank of Canada cut on Wednesday its main interest rate by a quarter-percentage point, becoming the first Group of Seven central bank to provide rate relief after a rapid and aggressive increase in borrowing costs to tame inflation.
Canada's central bank said a cut was warranted because of increased confidence that inflation is moving closer to its 2% target. Bank of Canada Gov. Tiff Macklem said more rate cuts could be in the offing should inflation show further signs of slowing.
The Bank of Canada lowered its target for the overnight rate to 4.75% from 5%, where it sat for 11 months. Over a 16-month period ended in July of last year, the Bank of Canada delivered 4.75 percentage points of rate increases to pull inflation down from a June 2022 peak of 8.1%. The sharp rise in interest rates has hit harder in Canada relative to the U.S., in part because of the country's elevated household and corporate debt levels.
"If inflation continues to ease, and our confidence that inflation is headed sustainably to the 2% target continues to increase, it is reasonable to expect further cuts to our policy interest rate," Macklem said, in prepared remarks he's set to deliver Wednesday at a press conference. "But we are taking our interest rate decisions one meeting at a time."
Eleven of 15 economists surveyed last week by The Wall Street Journal predicted a cut by the Bank of Canada. The Bank of Canada sets rate policy to achieve and maintain 2% inflation.
Canada's rate decision marks a start among G7 economies to lower borrowing costs, amid slowing inflation and weaker output. It is widely expected the European Central Bank on Thursday will cut its main interest rate. The Federal Reserve, meanwhile, is expected to remain on hold for the foreseeable future.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
06-05-24 1000ET
