Bank of Canada reduces rate to 3¼%

The Bank of Canada has reduced its overnight rate to 3.25%, down from 3.75%, continuing its balance sheet normalization policy. This move comes as global economic conditions evolve largely as expected. While the U.S. economy remains strong, Canada’s third-quarter growth fell short of projections, with weaker-than-expected performance in business investment, inventories, and exports. Consumer spending, however, has picked up, suggesting lower interest rates are starting to stimulate household demand.

Inflation in Canada has stabilized around 2%, and the Bank expects it to stay near this target over the next few years. Despite recent signs of a cooling labor market and moderate wage growth, risks remain, including potential new U.S. tariffs on Canadian exports. Domestically, policy measures like reductions in immigration and changes to GST rules may influence growth and inflation in the near term.

The housing market has also felt the effects of lower rates, with increased activity in both home purchases and housing construction, as more affordable borrowing costs support demand. However, rising home prices and higher mortgage rates could continue to pose challenges for prospective buyers.

Looking forward, the Bank is cautious but committed to maintaining price stability. While additional rate cuts are possible, each decision will depend on incoming data and the economic outlook. The next rate decision is scheduled for January 2025.