Bank cuts key rate to 4.75%

Bank of Canada signals more cuts are on the way after quarter-point drop, the first in four years

- JOSH RUBIN

Let the cutting commence.

The Bank of Canada announced Wednesday morning that it's reducing its key overnight lending rate to 4.75 per cent, the first time it has dropped below five per cent since last July, and the first time in over four years it has made any cut at all.

"With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points," the bank said in a press release announcing its widely anticipated decision.

Since last July, the bank's key overnight lending rate had sat at five per cent. The bank raised rates 10 times between March 2022 and last summer in a bid to wrestle inflation down to its two per cent target.

The theory is that by making it more expensive to borrow money, consumers and businesses will spend less, driving down prices and slowing the economy.

The last time the bank cut rates was in March, 2020, when it dropped the overnight rate from 0.75 per cent to 0.25 per cent as the COVID-19 pandemic hammered the Canadian economy.

In a speech, bank governor Tiff Macklem said further cuts could be coming, but warned that it will be taking baby steps.