Bank of Canada cuts key interest rate to 3.25% with slower pace of cuts going forward

The Bank of Canada Lowers Interest Rate to 3.25%

The Bank of Canada made an unexpected move on Wednesday by lowering its interest rate by 50-basis points to 3.25 per cent. This decision came as a surprise to many economists who were anticipating another significant cut following recent economic data that fell below the central bank’s expectations.

This marks the fifth consecutive rate reduction since June, with the last cut in October being the first half-point decrease since the start of the pandemic. Bank of Canada governor Tiff Macklem explained during a news conference that the bank felt it was time to ease its monetary policy as inflation had been stable around the two per cent target for several months.

Several factors influenced the decision to lower the rate by 50 basis points, including weaker-than-expected GDP data and projections of lower fourth-quarter economic growth. Macklem also mentioned the impact of the federal government’s reduced immigration targets on GDP growth.

One major concern raised during the news conference was the threat of new tariffs on Canadian exports by U.S. president-elect Donald Trump. Macklem acknowledged the potential disruption these tariffs could cause to the Canadian economy but emphasized that policy decisions cannot be based on uncertainties.

Looking ahead, Macklem stated that the governing council will continue to consider further rate reductions, but the bank will take a more gradual approach if the economy evolves as expected. The recent rate cuts are still working their way through the economy, and future decisions will be made on a meeting-by-meeting basis.

Overall, the Bank of Canada’s decision to lower the interest rate reflects a cautious approach to monetary policy in response to evolving economic conditions and external uncertainties.

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