The Bank of Canada Lowers its Policy Rate 50 Basis Points in Second Consecutive Decision
On Wednesday, December 11, 2024, the Bank of Canada reduced its target for the overnight lending rate from 3.75% to 3.25%. The cut was widely expected by financial markets in the lead-up to the decision, marking the fifth rate reduction since the onset of the pandemic, bringing rates down 1.75% from where they stood in April 2024.
The Canadian economy grew by 1% in the third quarter and is expected to come in weaker than projected according to the Bank of Canada. The Bank made note of a pickup in housing activity, noting that lower interest rates are likely boosting the market. The Bank also noted the employment market remains soft as the unemployment rate rose again November.
While the Bank observed that a number of federal and provincial policy measures will be coming into effect in the near term, they will be looking through any temporary effects and focusing on underlying trends to guide their policy decisions. The Bank stated the possibility of new tariffs on Canadian exports to the United States under the incoming administration has added uncertainty to its economic outlook.
With inflation currently trending around 2% and expected to remain close to that target over the next two years, and the economy still underperforming, the Bank notes it will evaluate the need for further reductions at each successive meeting.
The Bank of Canada will make its next scheduled interest rate announcement and publish its full outlook for the economy and inflation in its next Monetary Policy Report on Wednesday, January 29, 2025.
