Today, December 11, 2024, the BoC reduced its target for the overnight rate by a further 0.50% to 3.25%.
Today’s oversized cut is a full 175 basis points (or 1.75%) decrease below its peak of 5.00% in April 2024.
What prompted this further drop of 0.50% by the BoC? The unemployment rate rose to 6.8% in November, up 0.30% from October and 0.20% higher than expected and, excluding the pandemic years of 2020 and 2021, this marks the highest unemployment rate Canada has seen in nearly eight years.
Third quarter GDP growth came in at 1.00%, already well below the BoC already reduced forecast and advanced estimates showed a weak start to the fourth quarter.
Reductions in targeted immigration levels suggest the GDP growth in 2025 will be lower than the BoC’s projected target and this will further mute inflation as lower immigration dampens both supply and demand.
The good news is that lower rates are beginning to boost household spending as seen by increased consumer spending and household activity.
What is the unknown factor here? The possibility that the US may impose new tariffs on Canadian exports to the US has increased uncertainty and clouded the economic outlook.
CPI inflation is expected to average close to the 2.00% target of the BoC over the next couple of years.
Today’s rate drop benefits holders of a variable rate mortgage as Prime will decrease by a further 0.50% to 5.45%.
The next scheduled date for announcing the overnight rate target is January 29, 2025.
Reach out for a personalized consultation today!
Keith Baker | kpbaker@shaw.ca | 604.723.5363
Jackie Zerbe | jacqueline@totalmortgage.ca | 604.724.6982
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