Bank of Canada cuts rates by 25 basis points, as expected

The Bank of Canada cut interest rates on Wednesday by 25 basis points, as widely expected.

The move to 4.75% marked the first cut in four years and means the BoC is the first of the G7 central banks to cut rates in the current cycle.

It said in a statement: "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.

"Recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain. Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians."

The European Central Bank is widely expected to cut rates by 25 basis points when it makes its policy announcement on Thursday.

TD Securities said: "The Bank's desire for further easing of inflation pressures sets a relatively low threshold to future cuts, despite its desire to keep all options on the table, and history shows the Bank has a tendency to move twice in a row.

"As such, we look for another 25bp cut in July, with another 50bps of easing in Q4 bringing the overnight rate to 4.00% by year-end."