The Bank of Canada is set to announce its last interest rate decision of the year at 9:45 a.m. on Wednesday, followed by a news conference with governor Tiff Macklem and senior deputy governor Carolyn Rogers.
Economists are largely anticipating the central bank to cut its policy interest rate by 50 basis points (a half percentage point) to 3.25 per cent, but some are advising against the move. While many support a large cut, others argue that the bank should take a more restrictive approach and reduce the rate by 25 basis points, as the risks of increasing pressure on the housing market and a plummeting Canadian dollar loom in 2025.
In October, the bank 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.
“With inflation back to two per cent, we want to see growth strengthen. Today’s interest rate decision should contribute to a pickup in demand,” Macklem said in the October news conference.
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.
In recent public appearances, Bank of Canada officials have stressed 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
