11th December 2024: The Bank of Canada has lowered its benchmark interest rate by 50 basis points, bringing it to 3.25%. Announced on Wednesday, this marks a significant policy adjustment and hints at a slower pace for any future rate reductions.
Governor Tiff Macklem addressed concerns over economic uncertainties, highlighting the potential for new U.S. tariffs on Canadian exports under the incoming Trump administration. He described this as a “major new uncertainty” for the economic outlook.
This is the first time since the pandemic that the central bank has implemented two consecutive large rate cuts. Macklem noted that with the rate now significantly reduced, the focus will shift to a more gradual approach to further adjustments.
The current rate sits within the neutral range, which is considered neither restrictive nor overly stimulative for growth. Moving forward, decisions on further cuts will be made based on evolving economic conditions, Macklem explained during a press conference.
The rate cut had an immediate impact on currency markets, with the Canadian dollar gaining strength. The loonie was trading 0.29% higher at 1.414 per U.S. dollar, or 70.72 U.S. cents. Market analysts now estimate a 70% likelihood of a smaller, 25 basis point cut in January.
The central bank’s shift in tone indicates a cautious balancing act as it navigates economic uncertainties and global pressures.
