Before ringing in 2025, the Bank of Canada (BoC) has one more rate cut up its sleeve.
Driving the news: The BoC is widely expected to cut interest rates by 50 basis points today, dropping the national overnight interest rate to 3.25%. Five of Canada's six largest banks are predicting this, with only edgy cool kid TD dissenting, predicting a 25-basis point cut instead.
- Another jumbo cut came into play after GDP growth missed expectations and unemployment hit its highest level since 2017 (outside of the pandemic) in November.
Why it matters: Economists have raised concerns that a cut of this magnitude might be the wrong move. It could further weaken the Canadian dollar against the U.S. dollar at a time when the loonie is already struggling, and could soon struggle more under new U.S. tariffs.
- BMO analyst Benjamin Reitzes said a 50-point cut is not the “optimal path,” and highlighted how further CAD-USD disparity would be immediately felt in food imports.
Zoom out: While annual inflation growth is currently in the BoC’s 2% target range, it could reignite as core inflation remains volatile and retail spending is up. Given the circumstances, Scotiabank analyst Derek Holt went so far as to say that he’d prefer a rate cut pause.—QH