Today, the Bank of Canada (BoC) has announced a scheduled rate cut of 0.25%.  Per the BoC: 

“The Bank of Canada today reduced its target for the overnight rate to 3%.” Major FI’s (financial Institutions) will likely adjust their Prime Rate(s) to 5.2% from 5.45%.   “With inflation around 2% and the economy in excess supply, Governing Council decided to reduce the policy rate a further 25 basis points to 3%.” 

• More than unusual uncertainty: is projected caused by the threat of trade tariffs by the new administration in the United States. If broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. 

• The global economy: is expected to continue growing by about 3% over the next two years. Growth in the United States has been revised up, mainly due to stronger consumption. Since October, financial conditions have diverged across countries. US bond yields have risen, supported by strong growth and more persistent inflation. In contrast, yields in Canada are down slightly. The Canadian dollar has depreciated materially against the US dollar, largely reflecting trade uncertainty and broader strength in the US currency. Oil prices have been volatile and in recent weeks have been about $5 higher than was forecasted in October 2024. 

• Business investment remains weak. The outlook for exports is being supported by new export capacity for oil and gas. 

• Canada’s labour market: remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months, after lagging growth in the labour force for more than a year. Wage pressures, which have proven sticky, are showing some signs of easing. 

• GDP Growth: The BoC forecasts GDP growth will strengthen in 2025. Following growth of 1.3% in 2024, the Bank now projects GDP will grow by 1.8% in both 2025 and 2026, somewhat higher than potential growth. As a result, excess supply in the economy is gradually absorbed over the projection horizon. 

• CPI inflation: remains close to 2%, with some volatility due to the temporary suspension of the GST/HST on some consumer products. The BoC forecasts CPI inflation will be around the 2% target over the next two years. 

For more information about interest rates and how they affect your lending experience, please do not hesitate to contact us.