The Bank of Canada announced a 50-basis-point cut to its key interest rate, bringing it down to 3.75%. This marks the seventh and penultimate decision for 2024, with four consecutive rate cuts since June. This most recent cut is the largest yet, aimed at stimulating the Canadian economy.

Reasons Behind the Rate Cut

The Bank of Canada’s decision is driven by several factors, including the slowing inflation rate. The Consumer Price Index (CPI) inflation dropped from 2.7% in June to 1.6% in September. While housing costs remain high, they have started to moderate, and excess supply in other sectors has eased the price increases of many goods and services. Additionally, falling global oil prices have led to lower gasoline prices.

State of the Canadian Economy

Canada’s economy grew by about 2% in the first half of 2024, with growth expected to slow to 1.75% in the second half. While consumption continues to grow overall, it has slowed on a per capita basis. Full-time employment remains steady, with a 6.5% unemployment rate as of September. However, wage growth remains high relative to productivity, and immigration growth has expanded the labor force, though hiring has been modest.

Economic and Housing Market Projections

The Bank of Canada expects GDP growth to gradually strengthen over the next few years, driven by lower interest rates and a recovery in per capita consumer spending. Residential investment is also expected to rise, supported by strong housing demand, which will boost both home sales and renovation spending.

The Bank forecasts a GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026, with excess supply in the economy gradually diminishing.

Global Economic Outlook

Globally, the Bank projects economic growth to remain around 3% over the next two years. The U.S. economy is expected to perform better than previous forecasts, while China’s growth remains moderate. Eurozone growth has been modest but is expected to pick up slightly next year. Global inflation has declined in recent months, and financial conditions have eased as markets anticipate further interest rate cuts.

Looking Ahead

The Bank of Canada indicated that if the economy follows its latest forecast, further rate cuts are likely. However, the timing and pace of these cuts will depend on new data and its impact on inflation. The Bank’s next rate decision is scheduled for December 11, 2024, where further updates on the economic outlook will be provided.