Bank of Canada Cuts Again; Policy Rates Falls to 3.25%

The Bank of Canada lowered its key overnight lending rate for the fifth straight time on Wednesday. 

In providing further relief for borrowers and a shaky Canadian economy, the Bank announced another ‘super-sized’ 50-basis point reduction to bring its key policy rate to 3.25%. Today’s reduction, which followed a 50-point cut in October, has helped reduce the Bank rate by 1.75% since June. The rate is now at the top end of the bank’s so-called neutral range, the sweet spot where it neither stimulates nor dampens economic activity. 

But with most of the heavy lifting already done to get the national inflation rate back down to the preferred 2% target, it now appears the Bank plans to take a more moderate approach to any further interest rate cuts.   

"(The Bank) has reduced the policy rate substantially since June,” the Bank said in its rate announcement. “Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time.” 

Canadian headline inflation has hovered at about 2% since the summer and is expected to average close to that level over the next couple of years, according to Bank projections.   

Today’s rate announcement noted slightly weaker-than-expected Canadian economic growth in the third quarter of this year, with the Bank also projecting a weaker performance in the fourth quarter. The national unemployment rate also ticked higher in November, it added. 

Meanwhile, the Bank’s statement also cautioned that a number of announced policy measures will affect the outlook for near-term growth and inflation in Canada, including reduced immigration and the government’s planned GST holiday for some products. 

US President-elect Donald Trump’s tariff threats add further uncertainty to the outlook.