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

The Beer Store Confirms More Closures Across Ontario

The Beer Store is shutting down five more retail locations across Ontario. Three of these stores are in the Greater....

Hudson’s Bay Begins Final Liquidation, Historic Sale Sparks Outcry

Hudson’s Bay, Canada's oldest company, is preparing to close its remaining six stores, marking the end of an iconic era.....

Hudson’s Bay Cuts Commissions During Liquidation Sales

Hundreds of Hudson’s Bay beauty advisers are reeling after the company abruptly cut off their commission pay just weeks before....

World Economic Forum Chairman Klaus Schwab Retires After 50 Years of Global Leadership

Klaus Schwab, the 87-year-old founder of the World Economic Forum (WEF), has stepped down as chairman. After leading the influential....

China Returns $55m Boeing Jet as Trump Tariffs Impact Trade

A Boeing 737 MAX originally bound for China’s Xiamen Airlines made an unexpected return to the US on Sunday. The....

China-U.S. Tariff War Rattles Trade Ties and Businesses

Chinese exporters are on edge as a sweeping tariff war with the United States threatens long-standing trade relationships. What started....

Trump’s Commerce Chief Says, Electronics Tariff Exemption Is Temporary

The U.S. government’s decision to temporarily exempt electronics like smartphones and laptops from tariffs may not offer lasting relief. The....

Hudson’s Bay Insider Bid Protocol Raises Sale Speculation

Hudson’s Bay Company (HBC) has taken a significant step in its ongoing creditor protection process. A new internal protocol shared....

Prada to Acquire Rival Fashion House Versace in €1.25 Billion Deal

In a major move reshaping the global luxury fashion landscape, Prada Group has officially announced its acquisition of Italian fashion....

Biggest Drop in Gas Prices Across Canada: What’s Behind the Relief?

Canadians have been noticing a welcome change at the gas pumps. Over the past few weeks, fuel prices have fallen....

Trump Pauses Reciprocal Tariff for 90 Days, Hits China Harder with 125%

President Donald Trump has announced a temporary relief in his sweeping tariff policy, pausing higher levies for 90 days on....

Wall Street Fears Another ‘Black Monday’ Amid Trump’s Tariff Shock

U.S. stock futures plunged Sunday evening, triggering fears of a repeat of Black Monday, as markets reacted sharply to President....