{"id":47713,"date":"2024-12-11T22:38:59","date_gmt":"2024-12-12T03:38:59","guid":{"rendered":"https:\/\/prefblog.com\/?p=47713"},"modified":"2025-06-18T15:32:14","modified_gmt":"2025-06-18T15:32:14","slug":"boc-cuts-policy-rate-50bp-to-3-25-prime-follows","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=47713","title":{"rendered":"BoC Cuts Policy Rate 50bp to 3.25%; Prime Follows"},"content":{"rendered":"

The Bank of Canada has announced<\/a> it has:<\/p>\n

reduced its target for the overnight rate to 3\u00bc%, with the Bank Rate at 3\u00be% and the deposit rate at 3\u00bc%. The Bank is continuing its policy of balance sheet normalization.<\/p>\n

The global economy is evolving largely as expected in the Bank\u2019s October Monetary Policy Report (MPR). In the United States, the economy continues to show broad-based strength, with robust consumption and a solid labour market. US inflation has been holding steady, with some price pressures persisting. In the euro area, recent indicators point to weaker growth. In China, recent policy actions combined with strong exports are supporting growth, but household spending remains subdued. Global financial conditions have eased and the Canadian dollar has depreciated in the face of broad-based strength in the US dollar.<\/p>\n

In Canada, the economy grew by 1% in the third quarter, somewhat below the Bank\u2019s October projection, and the fourth quarter also looks weaker than projected. 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. Historical revisions to the National Accounts have increased the level of GDP over the past three years, largely reflecting higher investment and consumption. The unemployment rate rose to 6.8% in November as employment continued to grow more slowly than the labour force. Wage growth showed some signs of easing, but remains elevated relative to productivity.<\/p>\n

A number of policy measures have been announced that will affect the outlook for near-term growth and inflation in Canada. Reductions in targeted immigration levels suggest GDP growth next year will be below the Bank\u2019s 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\u2014including a temporary suspension of the GST on some consumer products, one-time payments to individuals, and changes to mortgage rules\u2014will affect the dynamics of demand and inflation. The Bank will look through effects that are temporary and focus on underlying trends to guide its policy decisions.<\/p>\n

In addition, the possibility the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.<\/p>\n

CPI inflation has been about 2% since the summer, and is expected to average close to the 2% target over the next couple of years. Since October, the upward pressure on inflation from shelter and the downward pressure from goods prices have both moderated as expected. Looking ahead, the GST holiday will temporarily lower inflation but that will be unwound once the GST break ends. Measures of core inflation will help us assess the trend in CPI inflation.<\/p>\n

With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range. Governing Council has reduced the policy rate substantially since June. Going forward, we 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 is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.<\/p><\/blockquote>\n

Mark Rendell in the Globe comments<\/a>:<\/p>\n

Mr. Macklem justified the oversized move by pointing to tepid economic growth and a weakening labour market in recent months. Canada\u2019s gross domestic product growth undershot the bank\u2019s forecast in the third quarter and the unemployment rate jumped to 6.8 per cent in November from 6.5 per cent the month before.<\/p>\n

\u201cMonetary policy no longer needs to be in restrictive territory. We want to see growth pick up to absorb the unused capacity in the economy to keep inflation close to 2 per cent,\u201d Mr. Macklem said.<\/p>\n

He highlighted a number of risks on the horizon. Chief among these is a slowdown in population growth following Ottawa\u2019s new immigration targets, \u201cwhich suggest GDP growth next year will be lower than we forecast in October,\u201d Mr. Macklem said.<\/p>\n

He also pointed to the potential of U.S. tariffs on Canadian goods, which he called \u201ca major new uncertainty.\u201d President-elect Donald Trump has threatened to impose a 25-per-cent tariff on all Canadian imports unless Ottawa does more to address border security concerns, and he campaigned on a across-the-board tariff of 10 per cent to 20 per cent on all imports.<\/p>\n

\u201cThe economic outlook is clouded by the possibility of new tariffs on Canadian exports to the United States. No one knows how this will play out in the months ahead \u2013 whether tariffs will be imposed, whether exemptions get agreed, or whether retaliatory measures will be put in place,\u201d Mr. Macklem said.\n<\/p><\/blockquote>\n

…while Darcy Keith reports<\/a>:<\/p>\n

Implied interest rate probabilities in overnight swaps markets suggest a 67 per cent chance of a 25 basis point cut at the next policy meeting on Jan. 29, and 33 per cent odds that there will be no change at all to the bank\u2019s overnight rate, according to the latest LSEG data after today\u2019s BoC decision.<\/p><\/blockquote>\n

<\/a>
Post-announcement<\/div>\n

The indicated December, 2025, rate of 2.65% may be compared with the 2024-12-6 forecast<\/a> of 2.61%.<\/p>\n

Prime followed:<\/p>\n