The Bank of Canada lowered its interest rate by 50-basis points to 3.25 per cent on Wednesday but signalled a slower pace of rate cuts moving forward.
Economists were largely expecting another weighty cut following a quarterly GDP report that saw growth come in below the central bank’s projection and a jobs report that showed an uptick in the unemployment rate.
The decision marked the fifth consecutive reduction since June. In October, the central bank cut rates by a half-point for the first time since the pandemic.
Bank of Canada governor Tiff Macklem said during a news conference that the bank’s governing council felt its monetary policy no longer needed to be as restrictive with inflation hovering around its two per cent target since the summer.
Several other factors also weighed into the decision to cut by 50 basis points, including the weaker-than-expected GDP data.
Fourth-quarter economic growth is also expected to be weaker than projected, and the federal government’s lower immigration targets will contribute to downward GDP growth, the governor noted.
“When you look at all the data, it does tilt towards a softer economic outlook,” Macklem said.
Several reporters asked Macklem about U.S. president-elect Donald Trump’s threats of a 25 per cent tariff on all Canadian goods.
“The threat of new tariffs on Canadian exports, particularly at the level that’s been suggested, that is a major new source of uncertainty,” said Macklem, acknowledging that if the proposed tariffs were applied they would be “very disruptive” to the Canadian economy.
But he said that with so much still unknown about the tariffs, including whether they will be implemented or if the federal government will retaliate, “we can’t run policy on something that might happen.”
As for the central bank’s plan for cuts moving forward, Macklem noted that the five rate cuts made since June are still working their way through the economy.
“Going forward I expect the governing council will be considering further reductions to the policy rate,” he said. But if the economy continues to evolve as expected, the Bank of Canada will take a more gradual approach to cuts.
“The reality is we’re going to take those decisions one meeting at a time.”