Ottawa, Canada- The Bank of Canada today lowered its target for the overnight rate to 3%, reducing the Bank Rate to 3.25% and the deposit rate to 2.95%. Additionally, the central bank announced plans to end quantitative tightening and gradually restart asset purchases in early March, stabilizing and modestly growing its balance sheet.
The decision comes amid ongoing economic uncertainty, particularly due to the threat of trade tariffs by the new U.S. administration. The Bank’s latest Monetary Policy Report (MPR) projects global economic growth at 3% over the next two years, with the U.S. economy expected to perform better due to strong consumer spending. However, growth in the eurozone remains sluggish, while China benefits from recent policy stimulus despite underlying structural challenges.
In Canada, interest rate cuts have begun to stimulate the economy, with consumer spending and housing activity strengthening. However, business investment remains weak. The labour market is still soft, with the unemployment rate at 6.7% in December, though recent months have shown improved job growth.
The Bank projects Canada’s GDP will grow by 1.8% in both 2025 and 2026, following 1.3% growth in 2024. Slower population growth due to reduced immigration targets is expected to moderate the country’s economic expansion. CPI inflation remains near 2%, with shelter price inflation easing and inflation expectations remaining stable.
While economic risks are currently balanced, the Bank warned that a prolonged trade conflict with the U.S. could weaken growth and drive prices higher. The Governing Council’s decision to cut rates by 25 basis points reflects confidence in Canada’s s economic recovery while maintaining vigilance against external threats.
The Bank of Canada reaffirmed its commitment to price stability, emphasizing that it will closely monitor economic developments and adjust policy as needed.
The next scheduled date for announcing the overnight rate target is March 12, 2025