Bank of Canada Cuts Policy Rate to 3.25% to Support Growth
The Bank of Canada has reduced its target for the overnight rate by 50 basis points to 3.25%, with the Bank Rate at 3.5% and the deposit rate at 3.25%. This decision aims to support economic growth amid signs of weaker-than-expected activity in the latter half of 2024, while inflation remains stable around the Bank’s 2% target.
Economic Highlights:
- Global Trends: The U.S. economy shows resilience with strong consumption and a solid labor market, while growth in the euro area is slowing, and China faces subdued household spending despite robust exports. Global financial conditions have eased, leading to a weaker Canadian dollar against a strong U.S. dollar.
- Canada’s Economy: GDP grew by 1% in Q3, below projections, with Q4 also expected to underperform. Consumer spending and housing activity have picked up, signaling that lower interest rates are stimulating household demand. However, business investment and exports have lagged, and unemployment rose to 6.8% in November.
Policy Factors: Recent changes in federal and provincial policies, such as a temporary GST suspension on some goods, one-time payments, and updated mortgage rules, will influence demand and inflation dynamics. The Bank is focusing on long-term trends rather than temporary impacts in its policy decisions.
Inflation Outlook: CPI inflation has hovered around 2% since the summer and is expected to stay near the Bank's target. Core inflation metrics and evolving economic conditions will guide future rate decisions.
Looking Ahead: The Governing Council will assess the need for further rate adjustments based on incoming data and its impact on inflation. The next policy rate announcement is scheduled for January 29, 2025, alongside the Bank’s Monetary Policy Report.
This rate cut underscores the Bank’s commitment to maintaining price stability and supporting economic recovery while navigating global and domestic uncertainties.