UPDATE - Bank of Canada reduces policy rate 25 basis points, 1st rate cut since March 2020

UPDATES WITH ADDITIONAL ECONOMIC INFO; REVISES HEADLINE

By Ovunc Kutlu

ISTANBUL (AA) - The Bank of Canada announced Wednesday that it had reduced the policy rate by 25 basis points, its first rate cut in more than four years.

The target for the overnight rate was lowered to 4.75%, with the bank rate at 5% and the deposit rate at 4.75%.

The move is the first rate cut by the central bank since March 2020, when it lowered the policy rate 25 basis points in response to the economic conditions caused by the coronavirus pandemic.

"The global economy grew by about 3% in the first quarter of 2024," the bank said in a statement. "In Canada, economic growth resumed in the first quarter of 2024 after stalling in the second half of last year."

The bank said Canada's economy grew 1.7% in the first quarter of this year growth, which was slower than its forecast, but noted that consumer prices eased further to 2.7% in April.

"Recent data has increased our confidence that inflation will continue to move towards the 2% target," the central bank said.

-Consumption growth ‘solid’

"Consumption growth was solid at about 3%, and business investment and housing activity also increased," the statement said. "Wage pressures remain but look to be moderating gradually. Overall, recent data suggest the economy is still operating in excess supply."

"The Bank’s preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum," it added. "Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average."

Its neighbor the US’ economy expanded more slowly than was expected, as weakness in exports and inventories weighed on activity, while activity in the euro area picked up in the first quarter of this year, according to the bank.

China’s economy, meanwhile, was also stronger in the first quarter, supported by exports and industrial production, but domestic demand in the country remains weak, it added.

"Inflation in most advanced economies continues to ease, although progress towards price stability is bumpy and is proceeding at different speeds across regions," said the bank, adding that oil prices have averaged close to its estimates.

The Bank of Canada said its Governing Council is closely watching the evolution of core inflation and remains especially focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and pricing behavior.