The Bank of Canada concluded 2024 with a 50-basis-point cut to its benchmark interest rate, marking the fifth rate reduction since June. Below, we summarize the Bank’s rationale for this decision and its forward-looking statements.

Canadian Economy and Housing Market Performance

Canada’s economic growth reached 1% in the third quarter of 2024, slightly below the Bank’s October projection. Business investments, inventory levels, and exports dragged down GDP growth, but consumer spending and housing activity rebounded, reflecting the stimulative effects of lower interest rates.

Revisions to national accounts data showed higher GDP levels over the past three years due to stronger-than-expected consumption and investments. Meanwhile, unemployment rose to 6.8% in November as job creation lagged population growth. Wage growth, though slowing, remains elevated relative to productivity.

Inflation Trends and Outlook

Inflation has hovered around 2% since the summer and is expected to remain near this target over the next two years. Pressures from housing and goods prices have moderated as anticipated. Temporary policies like the GST holiday will reduce inflation briefly, but its effects will reverse once the tax is reinstated.

Global Economic Conditions and the Canadian Dollar

The global economy aligns largely with the Bank’s earlier forecasts. The U.S. economy remains robust, while growth in the eurozone and China has shown mixed results. Globally eased financial conditions and a strong U.S. dollar have led to a depreciation of the Canadian dollar.

Looking Ahead: Uncertainty and Policy Focus

Recent domestic policy measures, including reduced immigration targets, temporary GST suspensions, and adjustments to mortgage financing rules, will influence inflation and demand dynamics in the short term. The Bank has emphasized that it will focus on underlying trends rather than temporary policy impacts when shaping monetary decisions.

Additionally, potential U.S. tariffs on Canadian exports add uncertainty to the economic outlook, further complicating Canada’s growth trajectory.

Conclusion

The Bank has substantially lowered rates since June and will evaluate future cuts on a case-by-case basis. Its commitment remains to maintain price stability by keeping inflation near the 2% target.

What’s Next?

The next rate decision will be on January 29, 2025. Stay updated through our resources page for further developments.