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In its final announcement of 2024, the Bank of Canada cut interest rates by 50 basis points, bringing the overnight rate down to 3.25%. This was second time this year that BoC reduced rates by 50 basis points, the first happened in October.
The Governor of the Bank of Canada, Tiff Macklem, said the bank’s governing council considered both a 25 basis point cut and a 50 basis point cut landing on the latter. One of the reasons for the decision being that the country no longer needs restrictive monetary policy.
“The growth outlook appears softer than we predicted in October,” said Macklem.
In an effort to rein in inflation, the BoC hiked rates up to 5% in 2023. Then in 2024, began reducing interest rates, cutting them a total of five times.
After all of the cuts, we’re seeing that household spending and the housing market are rebounding, says Scotiabank Senior Vice President and Chief Economist, Jean-François Perrault.
Scotiabank economists believe the Bank of Canada will continue cutting rates until the overnight rate reaches 2.75% or 3%. But Perrault warns that this could change.
“The Bank of Canada will be watching how the policies of the new US president affect the economy in 2025, as well as how inflation in Canada evolves,” said Perrault.
“We can’t run policy on something that might happen,” Macklem told reporters during the policy announcement Wednesday. “We’re not expecting a recession.”
Macklem explained that the BoC will be making its monetary decisions based on the latest information it has on hand and that next year’s approach could be more gradual than the cuts Canadians saw in 2024.
The Bank of Canada will hold eight policy interest rate announcements in 2025, the first is set for January 29.
