The Bank of Canada has decreased its primary interest rate by 25 basis points to 4.75 percent, marking its first reduction in four years. This move was widely anticipated and reflects positive trends in inflation.

After maintaining the rate at a two-decade high of 5 percent for nearly a year, the central bank stated on Wednesday that indicators suggest a favorable outlook for underlying inflation.

"With more evidence that underlying inflation is declining, monetary policy does not need to be as restrictive," Governor Tiff Macklem commented following the announcement.

Financial markets immediately factored in a 42 percent chance of a further cut to 4.5 percent next month, with a substantial expectation for another reduction in September. Many economists polled by Reuters had predicted the Wednesday cut.

Following the decision, the Canadian dollar lost its early gains, weakening by 0.4 percent to 1.3733 against the U.S. dollar, equivalent to 72.98 U.S. cents.

The Bank of Canada joins Sweden's Riksbank and the Swiss National Bank in lowering rates, which have previously strained households and businesses and muted economic growth amid easing price pressures.

It is anticipated that the European Central Bank may follow this trend on Thursday, according to financial market predictions.

Canada's inflation rate has slowed this year, reaching a three-year low of 2.7 percent in April. While rates have been below 3 percent for four consecutive months, they remain above the Bank of Canada's 2 percent target.

"If inflation continues to decline and our confidence that it will sustainably return to the 2 percent target increases, further cuts to our policy interest rate can be expected," Macklem indicated regarding potential future rate adjustments.

"However, we will make rate decisions one meeting at a time," he added.

Macklem, who has repeatedly warned that rate reductions will not be as swift as increases, noted that further progress in tackling inflation may be erratic and risks linger.

“We have growing confidence that the Bank of Canada will reduce rates again in July,” Royce Mendes, head of macro strategy for Desjardins Group, stated in a note.

Andrew Grantham, senior economist at CIBC, also predicted a July cut, forecasting a total of four reductions for the year.

The next rate announcement is scheduled for July 24, when the bank will also publish its latest quarterly forecasts.

Economic expansion in the first quarter was slower than expected at 1.7 percent, thereby increasing market expectations of a rate cut.

Macklem remarked that the economy is operating with excess capacity, allowing for growth even as the overall inflation rate decreases.

He reiterated that the bank would maintain its focus on the imbalance between demand and supply, inflation expectations, wage growth, and corporate pricing behavior.