This morning, the Bank of Canada announced a decrease in its key interest rate by 0.50%. The prime rate has decreased from 5.95% to 5.45%. As a result, variable-rate mortgage holders will see a decrease of approximately $30.68 per month for every $100,000 of mortgage.
The global economy is changing largely as expected in the Bank’s October Monetary Policy Report (MPR). In the United States, the economy remains strong, with steady consumer spending and a solid job market. Inflation is stable, though some price pressures persist. Global financial conditions have eased, and the Canadian dollar has weakened against a stronger US dollar.
In Canada, the economy grew by 1% in Q3, slightly below the Bank’s October forecast. Q4 also appears weaker than expected. Third-quarter growth was dragged down by lower business investment, inventories, and exports. However, consumer spending and housing activity increased, indicating that lower interest rates are encouraging household spending. Historical revisions to the National Accounts show higher GDP levels in recent years, driven by greater investment and consumption. The unemployment rate rose to 6.8% in November as job growth slowed compared to the labour force. Wage growth has eased slightly but remains high relative to productivity.
Several policy measures will influence Canada’s near-term growth and inflation. Lower immigration targets are expected to reduce GDP growth next year below the Bank's October forecast. However, the impact on inflation may be smaller, as reduced immigration slows both demand and supply. Other policies, such as the temporary GST suspension on some goods, one-time payments, and changes to mortgage rules, will also affect demand and inflation. The Bank will focus on temporary effects and underlying trends when making policy decisions.
However, uncertainty has increased due to the potential for new US tariffs on Canadian exports, which could hurt Canada’s economic outlook.
Consumer price index (CPI) inflation has been near 2% since summer and is expected to stay close to the target over the next few years. Recent trends show moderating price pressures in both shelter and goods, as expected. The temporary GST suspension during the holidays will lower inflation briefly but will reverse once the GST break ends. Core inflation measures will help track underlying CPI trends.
With inflation near 2% and the economy in excess supply, the Governing Council decided to reduce the policy rate by another 50 basis points. This move supports growth and keeps inflation within the 1-3% target range. Since June, the policy rate has been reduced significantly. Future decisions on rate cuts will be made based on new data and their implications for inflation. The Bank remains committed to keeping inflation close to its 2% target and maintaining price stability for Canadians.
The next Bank of Canada announcement will be on January 29, 2025.
If you'd like to learn more about this recent announcement or have any questions, please feel free to reach out to me, and I’d be glad to help!
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