Jumbo cuts done and dusted: What economists are saying about the Bank of Canada and interest rates
The Bank of Canada cut its benchmark lending rate by 50 basis points on Wednesday to 3.25 per cent.
The second jumbo-sized cut in a row brings the central bank’s rate to the top end of its neutral range — where borrowing costs neither stimulate nor impede growth — of 2.25 per cent to 3.25 per cent.
But the economic landscape is shifting under its feet as signs emerge that inflation could be on the rise again, and consumer spending and the housing market show signs of life on lower borrowing costs.
Taking that into account and the uncertainties Donald Trump‘s upcoming second term pose for the Canadian economy, here’s what economists think the Bank of Canada will do in 2025.
Canadians shouldn’t expect more jumbo-sized interest rate cuts, Stephen Brown, deputy chief North America economist at Capital Economics Ltd., said in a note.
The Bank of Canada in its official statement said it will be taking a different approach on rate cuts in the new year.
“The accompanying communications were more hawkish than might have been expected, with the (central) bank no longer indicating that further cuts are guaranteed,” Brown said, highlighting the shift in the statement to “we will be evaluating the need for further reductions in the policy rate one decision at a time” from “we expect to reduce the policy rate further” in the Oct. 23 decision.
He thinks policymakers will continue to cut rates, just not as much as previously forecast.
Capital Economics expects three more cuts of 25 basis points in 2025, pointing to a higher terminal rate than in earlier projections.
Brown thinks this rate-cutting cycle will end at 2.5 per cent rather than two per cent, given that the economy is showing some “green shoots” in consumer spending and the
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