Bank of Canada Signals Gradual Approach to Future Rate Cuts as 2025 Begins
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The Bank of Canada (BoC) has lowered the policy rate five times in 2024, with a 50-basis-point cut in both October and December, bringing the rate to 3.25%. This marks the lowest rate in over two years. While further rate cuts are expected in 2025, inflation has remained steady at around 2% since summer, and Governor Tiff Macklem has suggested that future cuts will be more gradual.
Macklem emphasized that the BoC will be cautious, stating that while the policy rate has dropped significantly from 5% to 3.25%, the cuts are still working their way through the economy. He expects a slower pace of cuts going forward.
Economists have speculated that the BoC will implement a 25-basis-point reduction at the January 2025 meeting, with some reports indicating that core inflation, which remains above 2%, will influence the BoC's decisions. Despite stronger-than-expected economic growth in recent months, there are concerns about inflationary pressures, particularly with stronger consumption and residential investment. The BoC's next rate announcement is expected on January 29, 2025.
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