This first reduction in the interest rate comes after ten consecutive years of increases, which began in March 2022, which caused the central bank’s key rate to peak at 5% at the end of 2023, and which was maintained at this level since.
The successive interest rate increases decided by the Bank of Canada, like most central banks of industrialized countries, were intended to curb inflation. These increases had the effect of slowing down the dynamism of the Canadian economy, while making residential acquisition much more expensive.
The Bank of Canada is making this shift while the Consumer Price Index (CPI) stands at 2.7% in April.
The central bank believes that inflation will continue to move towards its 2% target.
More generally, this first step by the Bank of Canada could be followed by other cuts by other central banks of industrialized countries. Expectations are high around the European Central Bank (ECB) to follow the path and start lowering its key rate.
This easing of monetary policies could have consequences on the financial markets, by impacting the yield and price of bonds. Equity markets should also be impacted, since the cost of money becomes less expensive, companies could revitalize their investment policies.
#Canada
