The Bank of Canada (BoC) released its Summary of Deliberations on Monday. The report contains the minutes from the BoC’s last meeting, which was held on December 11. The BoC lowered its benchmark overnight interest rate by 50 basis points (bps) to 3.25% at that meeting, its second straight jumbo rate cut, and fifth straight overall.

• The BoC believed interest rates no longer needed to be restrictive, which warranted the 50-bps rate cut. Some officials had argued for a cut of 25 bps. However, inflation is close to the BoC’s target, and the economy needs some support.
• BoC officials expressed a need to closely monitor Canada’s economic growth. Growth has waned in recent quarters in large part due to tight financial conditions, which have weighed on consumer and business spending. The BoC believes some support is required.
• The BoC believes its benchmark interest rate now sits at a relatively neutral level. Still, more interest-rate cuts are likely, but in a more gradual manner. The BoC has been encouraged by the uptick in consumer spending and real estate market activity since it began lowering interest rates.
• The interest-rate cuts have also helped lift Canadian financial markets in 2024. This has raised optimism about financial market investments. The Investment Funds Institute of Canada announced net sales of mutual funds and ETFs rose in November over October.

Comments and expectations from BoC officials point to more rate cuts in 2025, but likely not at the same pace as in the second half of 2024. Many BoC officials would like to see how the recent rate cuts are impacting Canada’s economy, households and businesses. Lower interest rates should boost Canada’s economy, but there are still risks to the outlook.

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