On December 11, 2024, the Bank of Canada announced a 50 basis point cut to its policy interest rate, bringing it down to 3.25%. This marks the fifth consecutive rate reduction since June. According to Governor Tiff Maclem, the shift in focus from inflation control to stimulating economic growth signals a new phase for the central bank.
The Bank of Canada’s primary role is to ensure price stability while supporting sustainable economic growth. With inflation now back at the 2% target, the Bank’s attention has turned to softer-than-expected growth and a labor market still facing challenges.
Canada’s economy grew just 1% in Q3, falling short of expectations. This slowdown was driven by declines in business investment, inventories, and exports. However, there are signs of recovery as consumer spending and housing activity have started to pick up, fueled by earlier interest rate cuts.
At the same time, the job market remains weak. Unemployment rose to 6.8% in November, with young people and newcomers especially affected. Although businesses are hiring, the number of job seekers is outpacing job openings.
According to Maclem, the excess capacity in the economy was a key factor in the Bank’s decision to cut rates again. The Bank of Canada aims to stimulate further spending and investment to close this gap and bring growth in line with its potential.
Impact of New Policies
Several new policies will shape the economic outlook in the coming months:
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Reduced immigration targets may dampen GDP growth in 2025, but Maclem noted the impact on inflation should be limited as slower population growth reduces both demand and supply.
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A temporary GST break on certain consumer goods will lower inflation briefly in January before rebounding in February.
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One-time government payments and changes to mortgage rules could influence household spending dynamics.
While these measures will have short-term effects, the Bank of Canada will continue to focus on long-term trends to guide its decisions.
It’s clear that the Bank of Canada is monitoring several factors, including inflation, economic growth, and political shifts south of the border, before making any further rate decisions. As Maclem stated, “The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.”
Real Estate Impact
While the rate cuts have had some effect on the real estate market, their impact has been modest. Sales are down compared to previous years, particularly from the heights of 2021-2022.
In summary, while these reductions have provided a boost to the GTA real estate market by lowering borrowing costs and stimulating buyer interest, the market remains expensive. First-time buyers will continue to face challenges in entering the market.
Wayne Bibby is an Annex resident and Realtor With Sutton Group - Associates
Read the announcement at The Bank of Canada Website
