As of January 18, 2025, leading banks and economists anticipate that the Bank of Canada will reduce its key interest rate by 25 basis points to 3.00% during its upcoming announcement on January 29, 2025. This follows a series of rate cuts totaling 1.75 percentage points since June 2024.
The decision to lower the interest rate is influenced by several factors:
Economic Uncertainty: Concerns about potential U.S. tariffs under the new U.S. administration have increased economic uncertainty, prompting the Bank of Canada to adopt a more cautious approach.
Inflation Trends: Inflation has remained within the Bank's target range, allowing for a more accommodative monetary policy.
Employment Data: Despite a robust job report in December 2024, which saw the economy add 90,900 jobs and the unemployment rate edge down to 6.7%, some economists believe that further rate cuts may be necessary to fully utilize economic capacity.
Looking ahead, economists project that the Bank of Canada's policy interest rate could decrease to 2.75% by the end of 2025, with incremental cuts of 0.25% expected at each meeting.
It's important to note that these projections are subject to change based on evolving economic conditions and the Bank of Canada's ongoing assessment of the economy.