On January 29, 2025, the Bank of Canada reduced its target for the overnight rate to 3%, with the Bank Rate set at 3.25% and the deposit rate at 2.95%. In addition, the Bank announced the completion of its quantitative tightening program and plans to restart asset purchases in early March. These measures are aimed at stabilizing financial conditions while aligning balance sheet growth with the broader economy.
Economic Outlook and Key Considerations
The January 2025 Monetary Policy Report (MPR) highlights several key economic developments:
- Uncertainty remains high, particularly due to potential U.S. trade tariffs, which could disrupt economic projections.
- Global economic growth is expected to remain at 3% annually over the next two years.
- The U.S. economy has shown stronger-than-expected growth, largely driven by consumer spending, while growth in the euro area remains weak.
- The Canadian dollar has depreciated against the U.S. dollar, mainly due to trade concerns and the strength of the U.S. currency.
- Oil prices have been volatile, rising approximately $5 per barrel compared to assumptions made in the October 2024 MPR.
Impact on the Canadian Economy
Past interest rate cuts have started to stimulate economic activity, particularly in consumer spending and housing markets. However, business investment remains weak, and the labour market remains soft, with an unemployment rate of 6.7% in December 2024. While job growth has improved in recent months, wage pressures continue to ease only gradually.
The Bank of Canada projects GDP growth at 1.8% in both 2025 and 2026, which is slightly higher than anticipated. However, slower population growth, due to reduced immigration targets, may lead to more moderate long-term economic expansion.
Inflation and Future Outlook
- CPI inflation remains near the 2% target, though some volatility has occurred due to the temporary suspension of GST/HST on select consumer products.
- Shelter price inflation remains high but is gradually declining.
- The Bank expects inflation to remain around 2% over the next two years.
Potential Risks: While the Bank considers upside and downside risks to be balanced, a prolonged trade dispute with the U.S. could lead to weaker GDP growth and higher inflation.
Next Steps
The next interest rate announcement is scheduled for March 12, 2025. The Bank of Canada’s next full economic and inflation outlook, including an updated risk assessment, will be published in the April 16, 2025 MPR.
Freeway Real Estates Inc., Brokerage will continue to monitor these developments and provide updates as necessary.
