Bank of Canada delivers jumbo interest rate cut
The Bank of Canada lowered its key interest rate by half a percentage point today but signalled a slower pace of rate cuts moving forward.
The decision marked the fifth consecutive reduction since June and brings the central bank’s key rate down to 3.25%.
Forecasters were widely expecting the jumbo interest rate cut after the November labour force survey showed the unemployment rate rose to 6.8%.
Governor Tiff Macklem said in his prepared statement that the central bank opted for two large rate cuts in a row because economic growth doesn’t need to be restricted anymore.
However, he signalled that the pace of cuts will likely slow down.
“The governing council has reduced the policy rate substantially since June, and those cuts will work their way through the economy,” Macklem said. “With the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected.”
The bank's benchmark rate now sits at the upper bound of the neutral rate range.
READ: GDP per capita falls for sixth straight quarter, economists split on rate cut size
The neutral rate, which the central bank estimates is somewhere between 2.25% and 3.25%, reflects a theoretical interest rate that will neither help nor hinder economic growth.
“In Canada, the economy grew by 1% in the third quarter, somewhat below the Bank’s October projection, and the fourth quarter also looks weaker than projected,” the Bank of Canada said in a text accompanying the rate announcement made today. “Third-quarter GDP growth was pulled down by business investment, inventories and exports. In contrast, consumer spending and housing activity both picked up, suggesting lower interest rates are beginning to boost household spending.”
Looking ahead, the central bank says it expects economic growth next year to be weaker than previously forecast due to the federal government’s reduction in immigration.
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, the Bank of Canada added.
“In addition, the possibility the incoming U.S. administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook,” it continued.
With files from The Canadian Press and the Bank of Canada
