Ottawa – The Bank of Canada announced today a reduction in its target for the overnight rate to 3.25%, a decrease of 50 basis points, with the Bank Rate set at 3.5% and the deposit rate at 3.25%. The decision aligns with the Bank’s commitment to maintaining price stability and supporting economic growth as it continues its balance sheet normalization policy.
The global economy has been evolving as anticipated in the Bank’s October Monetary Policy Report (MPR). While the U.S. economy remains robust with steady inflation and a strong labor market, the euro area shows signs of weakening growth, and household spending in China remains subdued despite recent policy actions. Global financial conditions have eased, contributing to a depreciation of the Canadian dollar amid a stronger U.S. dollar.
In Canada, economic growth slowed to 1% in the third quarter, below the Bank’s previous projections, with weaker business investment, exports, and inventories. However, consumer spending and housing activity have shown improvement, indicating the effects of lower interest rates. Unemployment rose to 6.8% in November, with wage growth moderating but still outpacing productivity gains.
Several recent policy measures are expected to shape Canada’s near-term economic outlook. Reductions in immigration levels are likely to lower GDP growth in 2025, while federal and provincial initiatives—such as a temporary GST suspension on certain consumer products and one-time payments to individuals—will influence inflation dynamics. The Bank anticipates temporary downward pressure on inflation due to the GST holiday, which will reverse once it ends.
The possibility of new U.S. tariffs on Canadian exports adds uncertainty to the economic outlook. Meanwhile, inflation has remained around 2% since summer and is expected to stay close to the Bank’s target over the next two years. The Bank will continue to monitor core inflation to assess underlying trends.
The Governing Council’s decision to lower the policy rate reflects softer-than-expected growth and aims to support the economy while maintaining inflation within the 1-3% target range.
The next scheduled date for announcing the overnight rate target is January 29, 2025.
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