MNI BRIEF: Text of Bank of Canada Interest-Rate Decision
The Bank of Canada today reduced its target for the overnight rate to 3.25%, with
the Bank Rate at 3.75% and the deposit rate at 3.25%. The Bank is continuing its policy of balance
sheet normalization.
The global economy is evolving largely as expected in the Bank’s October Monetary Policy
Report (MPR). In the United States, the economy continues to show broad-based strength, with
robust consumption and a solid labour market. US inflation has been holding steady, with some
price pressures persisting. In the euro area, recent indicators point to weaker growth. In China,
recent policy actions combined with strong exports are supporting growth, but household
spending remains subdued. Global financial conditions have eased and the Canadian dollar has
depreciated in the face of broad-based strength in the US dollar.
In Canada, the economy grew by 1% in the third quarter, somewhat below the Bank’s October
projection, and the fourth quarter also looks weaker than projected. Third-quarter GDP growth
was pulled down by business investment, inventories and exports. In contrast, consumer
spending and housing activity both picked up, suggesting lower interest rates are beginning to
boost household spending. Historical revisions to the National Accounts have increased the level
of GDP over the past three years, largely reflecting higher investment and consumption. The
unemployment rate rose to 6.8% in November as employment continued to grow more slowly
than the labour force. Wage growth showed some signs of easing, but remains elevated relative
to productivity.
A number of policy measures have been announced that will affect the outlook for near-term
growth and inflation in Canada. Reductions in targeted immigration levels suggest GDP growth
next year will be below the Bank’s October forecast. The effects on inflation will likely be more
muted, given that lower immigration dampens both demand and supply. Other federal and
provincial policies—including a temporary suspension of the GST on some consumer products,
one-time payments to individuals, and changes to mortgage rules—will affect the dynamics of
demand and inflation. The Bank will look through effects that are temporary and focus on
underlying trends to guide its policy decisions.
In addition, the possibility the incoming US administration will impose new tariffs on Canadian
exports to the United States has increased uncertainty and clouded the economic outlook.
CPI inflation has been about 2% since the summer, and is expected to average close to the 2%
target over the next couple of years. Since October, the upward pressure on inflation from shelter
and the downward pressure from goods prices have both moderated as expected. Looking ahead,
the GST holiday will temporarily lower inflation but that will be unwound once the GST break
ends. Measures of core inflation will help us assess the trend in CPI inflation.
With inflation around 2%, the economy in excess supply, and recent indicators tilted towards
softer growth than projected, Governing Council decided to reduce the policy rate by a further 50
basis points to support growth and keep inflation close to the middle of the 1-3% target range.
Governing Council has reduced the policy rate substantially since June. Going forward, we will
be evaluating the need for further reductions in the policy rate one decision at a time. Our
decisions will be guided by incoming information and our assessment of the implications for the
inflation outlook. The Bank is committed to maintaining price stability for Canadians by keeping
inflation close to the 2% target.
Information note: The next scheduled date for announcing the overnight rate target is January 29, 2025. The Bank
will publish its next full outlook for the economy and inflation, including risks to the projection,
in the MPR at the same time