Economists anticipate a 25 basis-point cut, but trade tariffs and mixed economic data complicate the Bank of Canada's decision. The central bank will announce its next rate on January 29th.
The Bank of Canada is set to announce its next interest rate decision on Wednesday, January 29th, marking the first of eight planned announcements for 2025. While economists largely predicted a 25 basis-point cut, several factors are complicating the central bank's decision. These include lingering uncertainty surrounding trade tariffs, a mixed bag of economic indicators, and the current state of inflation. \The Bank's current policy rate stands at 3.25%, the lowest level in over two years.
This follows eight announcements in 2024, where the Bank lowered rates five times, including two consecutive 50 basis-point reductions. Economists at TD Bank maintain their December forecast, anticipating a 25 basis-point cut this week that would bring the policy rate down to 3%. This prediction is supported by Leslie Preston, a TD economist, who points to December's Consumer Price Index (CPI) figures. While headline CPI rose by 1.8% year-over-year, down from 1.9% in November, core inflation, a key metric for the BoC, climbed to 2.5%, exceeding the Bank's target. \Preston acknowledges that the recent dip in headline inflation, partly driven by tax cuts, could be temporary. She warns that ongoing core inflation pressures suggest inflation readings might increase in the coming months, potentially prompting the BoC to adopt a more gradual approach to interest rate cuts throughout 2025. Maria Solovieva, another TD economist, reinforces this view, emphasizing that the Bank's upcoming Monetary Policy Report will provide crucial insights into how they are incorporating trade risks into their outlook. Meanwhile, RBC economists Nathan Janzen and Claire Fan anticipate a more gradual 25 basis-point pace for the BoC this week, widening the gap with U.S. policy rates as the Federal Reserve is expected to hold steady in January. They argue that Canada's weaker economy has demanded earlier and more aggressive rate cuts compared to other advanced economies, but highlight that the current rate of 3.25% is still near the top end of the BoC's estimated neutral range. \Despite mixed recent GDP and inflation data, Janzen and Fan believe the softening labor market necessitates further rate cuts to stimulate economic recovery and prevent inflation from undershooting the 2% target. However, they acknowledge the uncertainty surrounding potential tariff shocks, which can have both inflationary and deflationary effects. The BoC's response to this complex environment remains unclear, with potential implications for sectors like housing that could mitigate the need for further rate cuts. \The Bank of Canada faces a delicate balancing act as it navigates these economic headwinds. The consensus among economists seems to lean towards a cautious approach, further lowering rates gradually while carefully monitoring the impact of trade tensions and the evolving economic landscape
BANK OF CANADA INTEREST RATES ECONOMY INFLATION TARIFFS MONETARY POLICY
Canada Latest News, Canada Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Bank of Canada Cuts Interest Rate by 50 Basis Points to 3.25%The Bank of Canada (BoC) has unexpectedly lowered its key interest rate by 50 basis points to 3.25% in its fifth and final major announcement of the year. The decision comes after Canada's unemployment rate rose to 6.8%, a near eight-year high. While experts predicted a 0.25% cut, the BoC cited increased consumer spending and housing activity as indicators that lower interest rates are stimulating household spending. The BoC also noted that inflation is around 2% and the economy is operating with excess supply, leading to softer growth than projected.
Read more »
Bank of Canada Expected to Lower Interest Rate by Quarter PointEconomic forecasts predict the Bank of Canada will decrease its key policy rate by 0.25 percentage points on Wednesday, reaching three percent. This move would follow two substantial rate reductions in October and December. The decision is influenced by recent inflation and job data, with Canada's annual inflation rate declining to 1.8 percent in December. Despite potential justifications for a rate pause, the looming threat of U.S. tariffs on Canadian goods is likely to prompt a modest cut.
Read more »
Canada's New Criminal Interest Rate May Push Borrowers to Black MarketA recent change to Canada's criminal interest rate, intended to protect consumers from predatory lenders, may have the opposite effect. Credit Canada CEO Bruce Sellery warns that the lower rate could drive borrowers with lower credit scores to illegal or unregulated lenders charging even higher rates. He argues the measure fails to address the root causes of debt and recommends alternative solutions like budgeting, credit counselling, and debt consolidation programs.
Read more »
Canada's New Criminal Interest Rate Sparks Concerns about Unintended ConsequencesThe new criminal interest rate in Canada, designed to protect consumers from predatory lending practices, has raised concerns among credit counsellors who fear it may inadvertently drive borrowers towards unregulated and potentially illegal lenders.
Read more »
Economists expecting 1/4-point rate cut from Bank of CanadaReduction would be the sixth straight, but smaller than what has been happening recently
Read more »
Bank of Canada Expected to Lower Key Rate by Quarter PointThe Bank of Canada is anticipated to decrease its key interest rate by 0.25 percentage points on Wednesday, bringing it down to three percent. This moderation follows two previous larger cuts in October and December. The projected decrease is attributed to recent inflation and jobs data, including a decline in the annual inflation rate to 1.8 percent and a rise in job creation.
Read more »