On Wednesday (June 5th), the Bank of Canada lowered its benchmark overnight interest rate by 25 basis points from 5.0% to 4.75% in June's interest rate resolution, becoming the first G7 country to initiate a rate cutting cycle.

Previously, Canada's CPI inflation rate further decreased to 2.7% in April, and has remained below 3% for four consecutive months. The central bank's preferred core inflation indicator has also slowed down, with three month indicators showing a sustained downward trend. The indicators of price increases for various components of CPI have further decreased, approaching the historical average level. However, the inflation rate of housing prices remains high.

The Bank of Canada stated that due to evidence that underlying inflation is easing and the management committee agrees that monetary policy no longer needs to be so strict, it has lowered policy interest rates by 25 basis points.

The Bank of Canada stated that recent data has strengthened the central bank's confidence that inflation will continue to move towards the 2% target, but there is still a risk to the inflation outlook. The management committee is closely monitoring the evolution of core inflation and continues to pay special attention to supply and demand balance, inflation expectations, wage growth, and corporate pricing behavior in the economy.

At the subsequent press conference, Bank of Canada Governor Tiff Macklem emphasized that interest rate decisions will be made on a per meeting basis based on economic data. If the economy and inflation continue to meet expectations, there may be further interest rate cuts. Although progress has been made in fighting inflation, the goal of bringing the inflation rate back to 2% has not yet been achieved.

The timing of further interest rate cuts will depend on subsequent data, and McLean acknowledges potential risks and obstacles in the process, but the Bank of Canada expects inflation to gradually decrease until the target is achieved.

Canada's next interest rate decision will be announced on July 24th, and the bank will also release its latest quarterly forecast.Canada's economic growth recovered in the first quarter of 2024 after stagnating in the second half of last year. According to official data previously released, GDP recorded a growth of 1.7% in the first quarter, lower than the forecast of the Central Bank's Monetary Policy Report (MPR), which also boosted market expectations for interest rate cuts.

Scotia Bank of Canada expects the Bank of Canada to cut interest rates again in July and expects the rate cut this year to increase from the previous 75 basis points to 100 basis points.

In addition to the Bank of Canada, other central banks are also considering interest rate cuts.

Market expectations are that the European Central Bank is expected to announce a rate cut on Thursday. Earlier, the Swiss National Bank and the Swedish Central Bank announced interest rate cuts in March and May of this year respectively, shifting towards more relaxed policies.

Last month, Christine Lagarde, the President of the European Central Bank, stated that inflation in the 20 eurozone countries has been "brought under control" after reaching a historic high.

Doug Porter, Chief Economist of the Bank of Montreal, believes that "the more countries that cut interest rates, the safer they are." He suggests that if more central banks reduce borrowing costs, the likelihood of monetary pressure concentrating on a specific country will decrease.

Porter said, "If central banks around the world see other central banks also moving in this direction, it would give them some comfort because it indicates that they have not completely misjudged the situation. I think this does make it easier for other central banks to start cutting interest rates as well."