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HomeCANADABank of Canada reduces policy rate by 25 basis points to 3%

Bank of Canada reduces policy rate by 25 basis points to 3%

The Bank of Canada has announced a 25-basis-point cut to its policy interest rate, bringing it down to 3%. This marks the sixth consecutive rate reduction as the central bank continues its efforts to stimulate economic growth while maintaining inflation near its 2% target.

Governor Tiff Macklem, speaking alongside Senior Deputy Governor Carolyn Rogers, highlighted three key takeaways: inflation remains stable at around 2%, lower interest rates are supporting household spending and economic activity, and potential U.S. tariffs on Canadian exports pose a significant risk to the economy.

“Economic momentum is building,” Macklem stated, pointing to increased consumer spending, particularly in housing and big-ticket items like automobiles. GDP growth is expected to rise from 1.3% in 2024 to 1.8% in both 2025 and 2026. However, the labour market remains soft, with December’s unemployment rate at 6.7% and wage pressures slowly easing.

The Bank also announced plans to complete the normalization of its balance sheet, ending quantitative tightening and gradually resuming asset purchases in March.

Despite positive economic signals, uncertainty looms over potential trade conflicts with the U.S. “A broad-based and prolonged tariff dispute could significantly disrupt the Canadian economy, weakening output while pushing inflation higher,” Macklem warned. While the Bank cannot counteract the economic inefficiencies caused by tariffs, it is enhancing its monitoring of trade dynamics and supply chains to assess potential impacts.

Looking ahead, the Bank emphasized its commitment to price stability, stating that future monetary policy decisions will weigh inflation risks against economic headwinds.

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