The Bank of Canada (BOC) reduced its target for the overnight rate by 50 basis points to 3.25% in their December statement, marking its fifth consecutive rate cut since June.
However, the central bank signaled a more gradual approach to future easing decisions while maintaining its commitment to price stability.
Key points from the Dec 2024 BOC statement:
- The policy rate has been reduced by a total of 175 basis points since June
- Inflation remains around the 2% target and is expected to stay close to target
- Economy grew slower than expected in Q3 at 1%, with Q4 also showing weakness
- Unemployment rate rose to 6.8% as labor force growth outpaced hiring
- New uncertainties include reduced immigration targets and potential U.S. tariffs
- Bank anticipates “more gradual approach” to future rate decisions
Link to Bank of Canada’s December 2024 Policy Decision
In their statement, BOC policymakers emphasized that while monetary policy has successfully brought inflation back to target, recent economic indicators point to softer growth than previously projected.
In particular, officials highlighted weaknesses in business investment, inventories, and exports, though consumer spending and housing activity showed signs of improvement in response to lower rates.
During the press conference, BOC Governor Macklem highlighted the impact of various policy measures, including reduced immigration targets and potential U.S. tariffs, as key uncertainties affecting the economic outlook. Also, the bank expects temporary effects from the GST holiday to briefly push inflation to around 1.5% in January before reversing.
Link to BOC Press Conference Opening Statement (Dec 2024)
Market Reactions
Overlay of CAD vs. Major Currencies Chart by TradingView
The Canadian dollar popped sharply higher across the board during the BOC announcement, as market players seemed to focus on the bank’s more measured approach to future cuts. While the BOC delivered the expected jumbo 0.50% rate cut, its signal of a more gradual pace ahead was less dovish than anticipated.
Towards the end of the North American session, the Loonie faded some of its post-BOC gains, closing back in the red versus the Kiwi and Aussie while holding on to its wins versus the rest of its counterparts, particularly the Swiss franc (+0.31%) and the euro (+0.24%).