The Bank of Canada reduced its policy interest rate by 50 basis points to 3.25 per cent on Wednesday in a bid to support economic growth.
Economists were largely anticipating the move, but some advised against it, saying the bank should take a more cautious approach as the risks of increasing pressure on the housing market and a plummeting Canadian dollar loom in 2025.
“Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time,” the Bank of Canada wrote in a statement.
In October, the bank also lowered the rate by 50 basis points — double what it’s done in previous decisions — to 3.75 per cent, emphasizing concern for a weaker Canadian economy.
The theory is that by making it more expensive to borrow money, consumers and businesses will spend less, driving down prices and slowing the economy.
Now, as the economy slows and inflation has been heading mostly downward, the bank is taking the reverse approach, trying to stimulate growth by cutting rates.
Since the October decision, Statistics Canada revealed that unemployment ticked up to 6.8 per cent in November, its highest level since January 2017, excluding the pandemic.
Meanwhile, per-person gross domestic product declined for a sixth consecutive quarter.
And inflation rose to two per cent in October from 1.6 per cent the month prior.
Recently, Bank of Canada officials have been stressing the risk of inflation falling below the central bank’s target.
“When prices are increasing by significantly less than two per cent, it’s usually because the economy and the job market are in bad shape. Many Canadians would not feel better off,” Bank of Canada deputy governor Rhys Mendes said in a speech in November. “Inflation expectations could also start to shift down, making it harder to get inflation back up to two per cent.”
This is a developing story.
With files from Josh Rubin
