The Bank of Canada is widely expected to lower interest rates by another 50-basis points at its final policy meeting of the year on Dec. 11.
Futures markets are currently pricing in an 85% chance that Canada’s central bank cuts interest rates by 50-basis points, or half a percentage point, in coming days, according to LSEG data.
Twenty-one out of 27 analysts polled by the Reuters news agency, including economists at each of Canada’s six largest banks, also expect a half-point cut.
Such a reduction would lower the Bank of Canada’s benchmark overnight interest rate to 3.25% from 3.75% and be the fifth consecutive time since June of this year that the central bank has cut rates.
Financial markets had been expecting a 25-basis point rate cut on Dec. 11 following a half-percentage-point cut in October.
However, that calculus changed in recent days after several economic indicators came in weaker-than-expected, notably a rise in Canada’s unemployment rate.
Gross Domestic Product (GDP) growth came in below the Bank of Canada’s forecast in this year’s third quarter, and the unemployment rate jumped to 6.8% in November from 6.5% the previous month.
The unemployment rate in Canada is now at its highest level since January 2017.
With the national economy weakening, most economists now anticipate a larger 50-basis point interest rate cut from the central bank to help stimulate growth.
At the same time, inflation in Canada is currently at the Bank of Canada’s 2% annualized target, giving it leeway to further reduce interest rates.
