As expected, the Bank of Canada cut interest rates by 50-basis points on Dec. 11. However, the central bank signalled that its pace of reducing borrowing costs is now likely to slow.
The Bank of Canada lowered its benchmark overnight interest rate by 50-basis points to 3.25%. It was the fifth consecutive time since June of this year that the central bank has cut rates, lowering them a cumulative 1.75%.
Economists describe the current pace of interest rate cuts as aggressive. However, the Bank of Canada has now signalled that the speed at which rates are lowered is likely to slow.
Officials dropped language from previous statements that said they “expect” to reduce borrowing costs if the economy moves in line with forecasts.
In its latest policy statement, the central bank said: “Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time.”
During a news conference with media following the latest rate cut, Bank of Canada Governor Tiff Macklem mentioned U.S. president-elect Donald Trump’s threat to impose 25% tariffs on goods America imports from Canada, calling it “a major new uncertainty.”
Macklem said the tariff threats are likely weighing on business investment in Canada, and it’s not known how the Canadian government might retaliate if such tariffs are imposed.
Despite those comments, Macklem stressed that the Bank of Canada does not expect a recession in the coming year, even though economic growth in Canada has slowed down.
The Bank of Canada said that the interest rate cuts undertaken this year should help boost economic growth that’s been weaker than expected.
Inflation in Canada is currently at the Bank of Canada’s 2% annualized target.
Commercial banks in Canada followed the central bank’s lead and have each lowered their prime lending rates by 50-basis points to 5.45%.
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