Kelowna 
Bank of Canada has reduced its policy rate by 25 basis points to 3%, bringing the Bank Rate to 3.25% and the deposit rate to 2.95%.
Credit: Bank of Canada Museum
The central bank also announced the conclusion of its quantitative tightening program, marking the normalization of its balance sheet. Asset purchases will resume in early March at a gradual pace to align with economic growth.
Highlights from the announcement:
- The global economy is projected to expand by approximately 3% over the next two years. The U.S. economy is experiencing stronger consumption-driven growth, while the euro area faces competitive pressures. China’s recent policy measures are bolstering demand and supporting short-term growth despite structural concerns.
- Previous interest rate cuts have stimulated consumer spending and housing activity, though business investment remains weak. The labour market remains soft, with a December unemployment rate of 6.7%. Job growth has recently improved, and wage pressures are beginning to ease.
- The Bank anticipates stronger GDP growth in 2025. However, due to slower population growth resulting from lower immigration targets, both GDP and potential growth will be more moderate than previously projected in October. After the growth of 1.3% growth in 2024, the Bank now expects GDP to expand by 1.8% in both 2025 and 2026, slightly exceeding potential growth.
- Inflation remains close to 2%, despite fluctuations due to temporary tax suspensions. Shelter price inflation remains high but is gradually declining.
“With inflation around 2% and the economy in excess supply, Governing Council decided to reduce the policy rate a further 25 basis points to 3%,” reads the statement by the Bank of Canada.
“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. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. ”
The next scheduled date for announcing the overnight rate target is March 12, 2025.
