The discussion among the Bank’s Governing Council weighed inflation risks against signs of economic slowing, ultimately deciding on the larger 50-bps cut.
“At the outset, each member of Governing Council acknowledged that the decision was a close call based on their own assessments of the data and the outlook for growth and inflation,” the summary of deliberations reads. “Data since the last decision were mixed, with more evidence that household spending was picking up but with a weaker outlook for growth overall.”
CPI inflation climbed from 1.6% in September to 2.0% in October, mainly due to smaller base-year effects from gasoline prices. The Governing Council saw the recent rise in core inflation as a result of price swings in some goods and services, with temporary GST suspensions likely adding to the short-term volatility.
Members agreed to “look through” these temporary factors and focus on the bigger picture of underlying inflation trends.
Where are rates headed in 2025?
Looking ahead to 2025, economists are predicting that the Bank of Canada’s rate-cutting cycle will slow down and eventually come to an end.
The Bank itself described its rate easing since June as “substantial.” Minutes from its latest meeting indicate that while Governing Council members anticipate discussing further reductions, they plan to take the decision “one meeting at a time.”
“…given the substantial cuts already in place and based on how they see the outlook, [Governing Council members] expected a more gradual approach to monetary policy going forward,” the minutes read.
This aligns with current forecasts from Canada’s Big 6 banks and other economists, who expect the pace of rate cuts to slow in 2025, eventually stabilizing the policy rate in the latter half of the year.
“We expect the BoC will proceed with four consecutive 25bp cuts to lower the policy rate to 2.25% by June next year, which will be the bottom of the BoC’s neutral range estimate but modestly stimulative in our view,” wrote Tony Stillo, Director of Canada Economics at Oxford Economics in a recent note.
Similarly, 5-year bond yields are generally forecast to further in 2025 before levelling off or even rising in 2026.
Here are the latest rate forecasts from Canada’s Big 6 banks, with changes from their previous projections noted in parentheses.
Current policy rate & bond yield forecasts from the Big 6 banks
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Last modified: December 24, 2024
