Bank of Canada Delivers Second Straight Half-Point Cut, Bringing Key Interest Rate To 3.25%

The Bank of Canada has delivered its second half-point rate cut in a row, bringing the policy rate to 3.25 per cent from 3.75 per cent.

At the same time, it signalled that it was moving into a “more gradual” phase of the monetary policy easing cycle and highlighted economic uncertainty ahead.

The Bank of Canada’s next interest rate decision is on Jan. 29. The bank will also publish its quarterly Monetary Policy Report with new forecasts for inflation and economic growth.

Governor Tiff Macklem will give a speech in Vancouver on Dec. 16 at 12:35 p.m. PT (3:35 p.m. ET), followed by a press conference.

Finance Minister Chrystia Freeland will release the federal government’s fall economic statement on Dec. 16. This will offer a snapshot of Ottawa’s finances and outline any new federal economic initiatives.

Bank of Canada senior deputy governor Carolyn Rogers on housing:

“What we’ve seen in housing recently is a pretty big uptick in activity, and it’s come without a commensurate uptick in prices. So that’s actually been quite good news. There’s some mortgage rule changes to come, another 50-basis-point cut. We know housing is very sensitive to interest rates, so we do expect some more pick-up [in activity].

Whether the reduction in immigration will sort of act as a counterbalance to that, that’s very possible. We’ll have to keep an eye on it. But so far, an increase in activity without an increase in prices is a good thing for the Canadian economy right now.”

Bank of Canada Governor Tiff Macklem on the Canadian dollar, which is trading at four-year lows, relative to the U.S. dollar:

“We actually don’t forecast the Canadian dollar. … We don’t target the exchange rate. We target inflation. … And in fact, the flexible exchange rate is a key part of the framework. It’s what allows us to run monetary policy geared to the needs of the Canadian economy. … Most of that depreciation in the Canadian dollar is really an appreciation in the U.S. dollar.

The U.S. dollar has been strong against pretty much every other currency. If you look at the Canadian dollar relative to major currencies other than the U.S. dollar, it’s actually very little changed. The fact that the Canadian dollar is weaker, that is actually one of the channels through which monetary policy works. A lower Canadian dollar makes Canadian exports more competitive in the U.S. and so that will add demand to the Canadian economy. It also makes imported goods more expensive, so that can also have some impact on inflation.
So those are both things that we will need to take into account in the conduct of monetary policy.”

Royce Mendes, managing director and head of macro strategy, Desjardins Securities

“While we still anticipate the central bank will ease another 25 basis points in January, the bar for sequential cuts after that is now higher. We are retaining our call that the Bank of Canada ultimately needs to take its policy rate down to 2 per cent by early 2026 as we expect U.S. tariffs to eventually be applied to some Canadian exports. However, we do expect a number of pauses along the way.”