The Bank of Canada has lowered its interest rate by 50 basis points to 3.25 per cent, but hinted it may pump the brakes on further deep cuts over concerns about inflation.


December 12, 2024 Tags:

The Bank of Canada reduced its interest rate by 50 basis points on Wednesday, bringing it down to 3.25%. The central bank also indicated that future rate cuts would likely proceed at a slower pace, as it aims to maintain inflation near its 2% target.

The move, which marks the fifth consecutive rate cut since June, was widely anticipated by economists. Their predictions were influenced by weaker-than-expected third-quarter GDP growth and a rise in unemployment, both of which signaled a need for further economic support.

In a press conference, Bank of Canada Governor Tiff Macklem explained that the central bank's monetary policy no longer needs to be as restrictive, given that inflation has remained around 2% since the summer. However, he acknowledged that changes in federal policies, such as reduced immigration targets, will have a significant impact on economic growth and inflation in the coming months.

"Lower immigration rates mean fewer new consumers and workers, which will slow GDP growth," Macklem stated.

Other factors behind the decision included projections for continued weak growth in the fourth quarter. "When you consider the weaker-than-expected third quarter and our outlook for the fourth quarter, it made sense to cut rates by 50 basis points," Macklem said.

Following the central bank's decision, major banks including TD, BMO, CIBC, and RBC lowered their prime rates from 5.95% to 5.45%.

Economic Outlook and Challenges

Looking ahead, the Bank of Canada plans to provide further updates on key policy measures, such as the GST holiday and changes to mortgage rules, in its January economic outlook. Macklem also noted the importance of the federal government’s fall economic statement, expected on Monday, in shaping the central bank's next steps.

While the Canadian economy remains under pressure, with unemployment rising in cities like Toronto and global factors posing additional risks, some economists believe the central bank is moving toward a “neutral” interest rate—estimated to be between 2.5% and 3%. Frances Donald, chief economist at RBC, predicts rates could drop to 2% by the end of 2025.

"This economy is still grappling with the effects of high interest rates," Donald said. "Although rates have come down, more reductions are likely."

The Canadian dollar strengthened after the announcement, trading at 1.4164 Cdn to the U.S. dollar by mid-afternoon. Analysts suggest this rally reflects market expectations of a slower pace of rate cuts in the future.

Trade Uncertainty Looms

The potential for U.S. tariffs on Canadian goods also featured prominently in Wednesday's discussions. Governor Macklem described the proposed 25% tariffs as a significant risk to Canada’s economy, potentially disrupting exports and further dampening business investment. However, he noted that uncertainty around whether the tariffs will be implemented makes it difficult to adjust policy based on speculation.

The Bank of Canada plans to take a measured approach to future rate adjustments. While additional cuts are expected, Macklem emphasized that the effects of the five reductions since June are still working their way through the economy.

"If the economy evolves as we anticipate, future cuts will likely be more gradual," he concluded.

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

You may also like

Markets Brace for Turbulence and Recession Fears as Liberation Day Approaches

Investors are on edge as Liberation Day, set for April 2, nears. As the year's first quarter ends on a....

Tencent Invests €1.2B in Ubisoft Spin-Off to Expand Gaming Empire

Chinese tech giant Tencent has made a €1.2 billion ($1.25 billion) investment in a newly formed Ubisoft subsidiary, securing a....

Trump’s Auto Tariffs Hit Canada Hard: A Trade War Unfolds

The U.S. has imposed a 25% tariff on finished vehicles imported into the country, marking one of the most severe....

Quebec Budget 2025 -2026 Fights Trump Tariffs But Sinks Deeper Into Debt

Quebec's finance minister, Eric Girard, has unveiled a historic $165.8-billion budget, aiming to strengthen the province’s economy in response to....

Samsung TV Pioneer Han Jong-Hee Passed Away at 63

Samsung Electronics has lost one of its key leaders. Han Jong-Hee, the co-CEO who played a major role in shaping....

Trump Plans New Tariffs for Vehicles & Pharmaceuticals, Near Future

U.S. President Donald Trump has announced plans to impose tariffs on vehicles and pharmaceuticals, further expanding his aggressive trade policies.....

Key Business Events to Watch in Canada This Week

This week brings several major developments in the Canadian business world. From political campaigns to economic reports, here are the....

Hudson’s Bay Begins Liquidation, But Six Stores Are Spared

Hudson’s Bay, Canada’s oldest company, has received court approval to start liquidating most of its stores. The Ontario Superior Court....

U.S. Tariffs Could be an Uphill Battle for Canada’s Greenhouse Industry

A fresh wave of U.S. tariffs on Canadian imports has sent shockwaves through Canada’s greenhouse sector, which heavily depends on....

Google’s $32B Wiz Deal: A Game-Changer for Cloud Security

Google has announced its biggest-ever acquisition, agreeing to buy cybersecurity firm Wiz for $32 billion in cash. This massive deal....

PepsiCo To Acquire Poppi to Expand in Healthy Soda Market

PepsiCo announced on Monday that it will acquire the prebiotic soda brand Poppi for $1.95 billion. The move comes as....

Hudson’s Bay May Start Its Stores Liquidation As Early As Tuesday

Toronto – Hudson’s Bay, the retail giant, is battling for survival as it seeks court approval to begin liquidating its....