Canada Interest Rate

The Bank of Canada cut its key interest rate by 50bps for a second consecutive decision in its December meeting, as expected by markets, to mark 175bps of cumulative rate cuts from this cycle’s peak of 5%. Still, rhetoric from policymakers from the central bank suggested that there will not be any more aggressive rate cuts next year, and officials dropped the statement that borrowing costs are due to be lowered should their base case hold. The sharp interest rate cut followed data showing that the Canadian GDP grew by an annualized 1% in the third quarter, below the central bank’s projections, and growth in the fourth quarter poses the risk of also missing forecasts. Still, other data indicated that consumer spending is higher than anticipated. Lastly, the BoC noted that inflation is expected to remain near the 2% target in the next couple of years, but potential tariffs from the upcoming US presidential administration placed uncertainty on price growth.