The Bank of Canada (BoC) announced earlier today that it reduced its overnight rate by 25 basis points to 4.75%. Following the news, the price of Bitcoin (BTC) quickly rallied to $70,500, inching closer to its all-time high.
BoC Normalizing Its Balance Sheet
The bank said the reduction in interest rates is part of an effort to continue its policy of a normalized balance sheet. With this recent effort, the BoC has become the first of the G-7 central banks to commence an anticipated cycle of easier monetary policy. This is a notable feat for the Central Bank as it follows a protracted fight to reduce inflation.
Many economists said the recent move from the Central Bank does not come as a surprise. This is because Canadian policymakers had previously expressed satisfaction with the path of inflation in the country. This is in addition to their concerns about slowing economic growth.
Economic growth in Canada resumed in the first quarter of 2024 after stalling in the second half of last year. While employment continues to grow at a slower pace than the working-age population, labor market data show businesses continue to hire. Also, consumption growth was solid at around 3%, and business investment and housing activity increased. These data all suggest the economy is still operating in excess supply.
As a result, the BoC decided that monetary policy no longer needed to be as stringent and lowered 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,” BoC stated.
Bitcoin Reacts
Bitcoin which quickly saw its price rise to $70,500 following the news, is now trading at $70,716 at press time. This reaction is not uncommon because speculative assets like Bitcoin typically increase following a relaxation of tighter monetary policies.
Analysts project that Bitcoin could even soar to $73,500 soon as a wave of lower interest rates is unveiled by other Western countries.
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