Another big interest rate cut just announced by Bank of Canada

The Bank of Canada announced another interest rate cut on Wednesday.

The bank reduced its target for the overnight rate by 50-basis points to 3.25 per cent on Wednesday.

This is the fifth consecutive reduction since June as the bank continues its policy of balance sheet normalization, the Bank of Canada said in a press release Wednesday morning.

With inflation around two per cent, the economy in excess supply, and recent indicators tilted towards softer growth than projected, the bank decided to reduce the policy rate by a further 50 basis points “to support growth” and keep inflation close to the middle of the one to three per cent target range, the bank said in the announcement.

The bank said they will be evaluating the need for further reductions in the policy rate one decision at a time.

“Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook,” the bank said. “The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.”

Canada’s economy grew by one per cent in the third quarter, somewhat below the bank’s October projection, and the fourth quarter also looks weaker than projected, the release stated.

The Canadian dollar has depreciated in the face of broad-based strength in the U.S. dollar as the economy continues to show broad-based strength, with robust consumption and a solid labour market in the United States.

U.S. inflation has been holding steady, with some price pressures persisting. Indicators point to weaker growth in Europe. In China, recent policy actions combined with strong exports are supporting growth, but household spending remains subdued.

New policies such as reductions in targeted immigration levels will affect the outlook for near-term growth and inflation in Canada, the bank stated.

GDP growth next year will be below the bank’s October forecast. The effects on inflation will likely be more muted, given that lower immigration dampens both demand and supply.

Other federal and provincial policies—including a temporary suspension of the GST on some consumer products, one-time payments to individuals, and changes to mortgage rules—will affect the dynamics of demand and inflation.

In addition, the possibility that the incoming Trump U.S. administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.

The next scheduled Bank of Canada overnight rate target announcement is Jan. 29.

Bank of Canada reduces policy rate by 50 basis points to 3¼%https://t.co/MuMPaqbieR#economy #cdnecon

— Bank of Canada (@bankofcanada) December 11, 2024