Bank of Canada drops key interest rate

Canada’s central bank has cut interest rates for the fifth consecutive time to 3.25 per cent as the country’s economy grows at a slower rate than projected.

The 50-basis-point cut comes Canada’s economy grew by one per cent in the third quarter of 2024, and the fourth quarter is looking weaker than projected, according to the Bank of Canada.

“Monetary policy no longer needs to be clearly in restrictive territory,” said Bank of Canada governor Tiff Macklem in a statement.

Macklem noted consumer spending and housing activity both picked up as a result of lower interest rates.

Another factor in cutting the interest rate was Canada’s unemployment rate rising to 6.8 per cent in November as the bank says the number of people looking for work has increased faster than the number of jobs.

“It has been especially hard for young people and newcomers to Canada to find work,” said Macklem.

A significant shift in immigration policy by the federal government has calmed population growth in the country and some private sector economists believe that could push unemployment even higher in the months to come.

“We expect the jobless rate to push higher yet, likely averaging 7 per cent in the first quarter of next year, before receding slightly,” wrote BMO’s chief economist Douglas Porter in a recent analysis paper.

In making its decision, the bank cited the incoming U.S. administration and the threat of 25 per cent tariffs on Canadian exports to the U.S., adding increased uncertainty and clouding the economic outlook.

“No one knows how this will play out in the months ahead – whether tariffs will be imposed, whether exemptions get agreed, or whether retaliatory measures will be put in place,” said Macklem.

Source: CTV News