Bank of Canada cuts interest rate for first time since 2020

Economic data for 2024 suggests further cuts may be needed

The Bank of Canada cut its key interest rate by 25 basis points to 4.25% on Wednesday, the first reduction since the COVID-19 pandemic began in 2020. The move was largely expected by economists, who had been anticipating a shift in the central bank's policy stance as inflation slows and the economy shows signs of cooling.

In a statement accompanying the decision, the Bank of Canada said that economic growth in Canada is moderating, as expected, and that inflation is beginning to trend lower. The bank also noted that global economic growth is slowing, which is weighing on the Canadian economy.

"The Bank of Canada judges that it is appropriate to pause the tightening cycle while it assesses the impact of the cumulative interest rate increases to date," the statement said.

The Bank of Canada's decision is a significant shift from its previous stance of raising interest rates to combat inflation. The bank has raised its key interest rate 10 times since March 2022, bringing it to 4.5%, the highest level since 2008.

The rate cut is likely to be welcomed by businesses and consumers, who have been facing higher borrowing costs. However, it could also lead to further declines in the value of the Canadian dollar, which has already fallen against the US dollar in recent months.

The Bank of Canada's next interest rate announcement is scheduled for March 8, 2024.