The Bank of Canada has lowered its target for the overnight rate to 3.25%, with the Bank Rate at 3.5% and the deposit rate at 3.25%, continuing its policy of balance sheet normalisation.
Globally, economic trends align with projections from the Bank’s October Monetary Policy Report. The US economy remains strong, with solid consumer spending and a robust labour market, while US inflation holds steady despite some lingering price pressures. The euro area shows signs of weaker growth, and in China, policy actions and strong exports are bolstering growth, although household spending remains subdued. Global financial conditions have eased, and the Canadian dollar has weakened against a broadly stronger US dollar.
In Canada, third-quarter GDP grew by 1%, below the Bank’s October forecast, with further softness expected in Q4. Business investment, inventories, and exports weighed on growth, while consumer spending and housing activity improved, reflecting the impact of lower interest rates. Revisions to historical GDP data reveal stronger investment and consumption over the past three years. The unemployment rate rose to 6.8% in November, with wage growth showing signs of easing but still elevated relative to productivity.
Several policy measures are expected to influence near-term growth and inflation. Adjustments to immigration targets may result in lower GDP growth next year, with limited effects on inflation. Temporary GST suspensions, one-time payments, and changes to mortgage rules will also impact demand and inflation dynamics, but the Bank plans to focus on underlying trends.
Risks such as potential US tariffs on Canadian exports have added uncertainty to the outlook. CPI inflation remains close to the 2% target and is expected to stay within the 1–3% range over the next two years, with temporary effects from the GST holiday factored in.
Given softer-than-expected growth and an economy with excess supply, the Bank reduced the policy rate by 50 basis points to support economic activity and keep inflation stable. Further rate adjustments will be data-driven, with the Bank committed to maintaining price stability for Canadians.
