Good news for prospective home buyers! The Bank of Canada (BOC) just announced another 50 basis point cut to its policy rate, taking it down to 3.25% from 3.75%. This rate cut is a significant move that is surely going to improve the market gap in real estate.
The Dec. 11 move is the central bank’s second consecutive half-point drop to the overnight rate and its sixth in a row this year. The bank last made two half-point cuts in a row at the beginning of the pandemic in 2020.
The central bank recognized that growth is anticipated to be less than the predicted growth in the second half of 2024. The third-quarter growth rate of 1% was lower than the bank’s 1.5% prediction, and preliminary forecasts for the fourth quarter are likely to be lower than predicted. Additionally, because the number of jobs grew more slowly than the labor force, the unemployment rate reached 6.8% in November.
However, James Orlando, a senior economist at Toronto-Dominion Bank, stated that he did not think the recent job data and the lower-than-expected GDP figures justified the 50 basis point drop.
Orlando wrote, “We believe that this overlooks the bigger picture.” While underlying growth momentum has been strong, with consumer spending underpinning basic demand, the unemployment rate increase ignores the reality that hiring has resumed its rapid pace in recent months.
“Several policy measures have been announced that will impact the growth and inflation outlook in the coming months,” he stated. The federal government’s lowered immigration targets are the most important of them, as they indicate that GDP growth in the upcoming year will be less than what we predicted in October.
Inflation is also anticipated to be distorted by the federal government’s newly announced two-month GST/HST break. According to the central bank, the action will temporarily reduce inflation to about 1.5% in January, but its effects will fade by the middle of February.
The bank’s so-called neutral range, which is thought to be the range where rates are just right—not too high nor too low—is where the policy rate is currently at the top end. In response to the rhetoric surrounding slower rate reduction, the Canadian dollar strengthened, and the loonie was trading 0.29% higher at 1.414 versus the US dollar, or 70.72 US cents.
A 70% possibility of a 25 basis point rate cut in January is factored into currency markets.
Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce, believes that additional policy rate reductions will be necessary due to the uncertainty surrounding tariffs and an economy that is growing below its potential.
When the central bank makes its next interest rate decision in the new year on January 29, it is anticipated to present fresh projections.
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