OTTAWA, June 5 - The Bank of Canada trimmed its key policy rate on Wednesday, the first G7 country to do so, in a widely expected move that will ease pressure on highly indebted consumers, but indicated further easing would be gradual and dependent on data.
Some economists predicted the BoC would cut again in July even though financial markets had priced in a 39% chance of a cut to 4.50% next month.U.S. inflation is stickier and markets expect the Federal Reserve will cut rates only once this year. Economists have questioned whether the BoC is running the risk of diverging too much from the Fed.
The BoC joins Sweden's Riksbank and the Swiss National Bank in bringing down rates that have burdened households and businesses alike, amid muted economic growth despite easing price pressures.Inflation in Canada has slowed this year to hit a three-year low of 2.7% in April. While inflation has stayed below 3% for four months in a row, it is still higher than the Bank's 2% target.
The next rate announcement is due on July 24, when the bank will also release its latest quarterly forecasts.After keeping interest rates at a more than two-decade high of 5% for almost a year, the BoC said the indicators for underlying inflation looked increasingly positive. Economic growth in the first quarter was slower than expected at an annualized rate of 1.7%, helping boost market anticipation of a rate cut.