The Bank of Canada (BoC) lowered interest rates at a fifth consecutive meeting yesterday. The rate cut was widely expected after the BoC signalled its intentions to aggressively cut interest rates to help support Canada’s economy. It doesn’t look like the BoC is stopping here. More rate cuts are likely as the central bank seeks to stabilize prices and boost consumer and business activity.

• The BoC lowered its policy interest rate by 50 basis points (bps) from 3.75% to 3.25%. A Bloomberg survey of economists had estimated a 50-bps rate cut. This was the BoC’s second consecutive 50-bps rate cut and fifth straight cut overall.
• The BoC believes the aggressive rate cut was warranted with inflation coming down and softer economic growth. The BoC believes inflation will hover around its 2% target over the next couple of years. However, changes in Canada’s immigration policy and potential tariffs could change this outlook.
• More rate cuts are likely in 2025, but the BoC signalled that it might scale back its aggressive stance. As a result, Canada’s central bank could return to 25-bps rate cuts. The BoC believes its rate now stands within its neutral range. Still, more cuts might be needed to help stimulate the economy further.
• More central bank rate announcements are on the way. The European Central Bank makes its announcement today, the US Federal Reserve Board next Wednesday, and the Bank of England next Thursday.

In 2024, the BoC shifted from lifting interest rates to lowering interest rates. Economic conditions were showing signs of deteriorating while inflationary pressures were easing, which pushed the BoC to lower rates. While more rate cuts are expected, the BoC must navigate through an uncertain outlook given how potential tariffs and other policy changes in the US might impact Canada’s economy.

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