On December 11, 2024, the Bank of Canada announced a reduction of its key policy rate by 50 basis points to 3.25 percent, marking the first time since the pandemic that the central bank has made consecutive significant cuts. Governor Tiff Macklem indicated that future cuts would be more gradual, diverging from previous messaging that continuous easing was necessary to support economic growth.
During a news conference, Macklem highlighted the potential tariffs proposed by incoming US President Donald Trump as a 'major new uncertainty' affecting the Canadian economy. He noted that these tariffs could impose a 25 percent levy on all Canadian exports to the United States unless Canada tightens border regulations.
The latest cut brings the policy rate to the upper end of the bank's neutral range, a level considered neither stimulative nor restrictive. Inflation currently stands at 2 percent, aligning with the bank's target, but economic growth has been sluggish, with an annualized rate of just 1 percent in the third quarter.
Macklem acknowledged that the economic outlook remains uncertain due to potential changes in immigration levels and government fiscal measures, such as a temporary sales tax rebate and a possible one-time cash handout. The bank plans to assess the need for further cuts on a case-by-case basis, focusing on long-term trends rather than temporary fluctuations.