The Bank of Canada lowered its interest rate by half a percentage point to 3.25 per cent on Wednesday. The decision marks the fifth consecutive reduction since June and the second half-point rate cut in a row.
Economists were predicting another significant interest rate reduction following slower than expected economic growth and increasing unemployment. Today’s 50-basis-point cut comes as Canada’s economy grew by only one per cent in the third quarter of 2024, lower than the central bank’s 1.5 per cent projection. Also underpinning the Bank of Canada’s decision was a 0.3 per cent increase in the national unemployment rate to 6.8% in November, the highest unemployment the nation has seen since January 2017 (excluding pandemic years – 2020 and 2021).
The Bank of Canada predicts fourth quarter economic growth will be even weaker and that lower immigration rates will put even more downward pressure on Canada’s GDP growth. Some economists predict that the federal government’s changes to immigration targets will push unemployment even higher.
According to Governor Tiff Macklem, the central bank opted for two large rate cuts in a row because inflation and economic growth no longer need to be restricted. With inflation back at the two per cent target, the central bank is now focused on keeping it there. With interest rates now down substantially, Canadians should now expect the Bank of Canada to take a more gradual approach to future rate decisions.
The Bank of Canada’s next scheduled date for announcing the overnight rate target is January 29, 2025.
