BoC eases 50bps but signals end to continuous rate reductions

BoC cut its overnight rate by 50 basis points to 3.25% as anticipated, but a notable shift in tone suggests a loosening of its easing bias. The central bank stated that interest rates have been reduced “substantially” since June, signaling that future cuts would be evaluated “one decision at a time.” This marks a clear pivot toward a more cautious, data-dependent approach, and rate reduction is no longer in auto-pilot.

Also, in the accompanying statement, BoC highlights a number of factors that introduce uncertainty surrounding both growth and inflation outlook, including the array of policy measures introduced by the federal and provincial governments.

The reduction in immigration targets is expected to dampen GDP growth next year. While this lower growth could temper inflationary pressures, the Bank noted that the effect would likely be “more muted” due to immigration’s impact on both demand and supply. Additional measures, such as the suspension of the GST on certain goods, direct payments to individuals, and adjustments to mortgage rules, are expected to create temporary fluctuations in demand and inflation.

The statement also highlighted increased uncertainty surrounding trade. The possibility of new tariffs from the incoming US administration adds a layer of complexity to the economic outlook, particularly given Canada’s reliance on exports to its southern neighbor.

Full BoC statement here.