Bank of Canada cuts key interest rate again

The Bank of Canada cut its key policy rate by 25 basis points on Wednesday, bringing it to three per cent.

On Wednesday morning, the Bank of Canada announced it reduced its target for the overnight rate to three per cent, with the Bank Rate at 3.25 per cent and the deposit rate at 2.95 per cent.

The announcement follows the 50-basis points cut to 3.25 per cent in December.

U.S. President Donald Trump threats of a 25 per cent tariff on all imports from Canada were noted in the bank’s statement.

Projections “are subject to more-than-usual uncertainty because of the rapidly evolving policy landscape, particularly the threat of trade tariffs by the new administration in the United States,” the report noted.

The Bank is also announcing its plan to complete the normalization of its balance sheet, ending quantitative tightening. The Bank will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly, in line with growth in the economy.

In Canada, past cuts to interest rates have started to boost the economy, the report noted. The recent strengthening in both consumption and housing activity is expected to continue. However, business investment remains weak. The outlook for exports is being supported by new export capacity for oil and gas.

Canada’s labour market remains soft, with the unemployment rate at 6.7 per cent in December. Job growth has strengthened in recent months, after lagging growth in the labour force for more than a year. Wage pressures, which have proven sticky, are showing some signs of easing.

With inflation around two per cent and the economy in excess supply, the Bank decided to reduce the policy rate a further 25 basis points to three per cent.

The cumulative reduction in the policy rate since last June is substantial.

“Lower interest rates are boosting household spending and, in the outlook published today, the economy is expected to strengthen gradually and inflation to stay close to target,” the Bank noted.

“However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada.”

See the full report here.

This report by The Canadian Press was first published Jan. 29, 2025.

The Canadian Press