The Bank of Canada wrapped up 2024 with another reduction in its policy interest rate, on December 11. This latest reduction - 50 basis points - follows four previous downward moves that started in June.
In the latest rate announcement, the Bank noted that “a number” of policy measures have been announced that will affect the outlook for near-term growth and inflation in Canada including reductions in targeted immigration levels. This suggests GDP growth in 2025 will be below the Bank’s October forecast.
In the Bank’s view, the effects on inflation will likely be more muted, given that lower immigration dampens both demand and supply. 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, in the Bank’s estimation, affect the dynamics of demand and inflation.
Going forward, the Bank said it “will look through effects that are temporary” and focus on underlying trends to guide its policy decisions.
In addition, the possibility that the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.
In concluding its announcement, the Bank observed that it has reduced its policy interest rate substantially since June. “Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time.”
It further noted that “our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook.”
It then repeated its often-hear phrase that it is committed to maintaining price stability for Canadians by keeping inflation close to its 2% target.
The Bank is scheduled to make its first interest-rate decision of 2025 on January 29th.
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