This morning, the Bank of Canada announced a decrease in its key interest rate by 0.25%. The prime rate has decreased from 5.45% to 5.20%. As a result, variable-rate mortgage holders will see a decrease of approximately $15.34 per month for every $100,000 of mortgage.
The Bank has also announced that it is making changes to how it manages its money, slowing down a process called "quantitative tightening," and plans to resume buying assets again in March to help support the economy.
Global economic growth is expected to remain steady at around 3% over the next two years. The U.S. economy continues to perform well due to strong consumer spending, while Europe faces challenges from increasing competition. In China, the government has taken steps to stimulate economic growth, but difficulties persist. Interest rates in the U.S. are rising due to strong economic expansion and inflation, while Canada’s rates have slightly decreased. The Canadian dollar has weakened against the U.S. dollar, primarily due to trade concerns. Oil prices have been fluctuating but are currently about $5 higher than in October.
In Canada, past rate cuts have boosted consumer spending and housing, providing some economic relief. However, business investments remain week. Key exports, such as oil and gas, are expected to see growth.
Inflation remains near 2%, though some prices change more because of tax cuts on certain products. Housing prices are still high but slowly coming down. The Bank expects inflation to stay around 2% over the next two years. If the US implements tariffs, Canada's economy could slow down, and prices could go up. But for now, risks are balanced. The Bank will continue watching the situation closely.
Given current inflation and excess supply in the economy, the Bank cut rates by 25 basis points. Lower rates are supporting household spending, and the economy is projected to strengthen gradually.
The Bank will closely monitor developments to ensure price stability. The next Bank of Canada announcement will be on March 12, 2025.
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