Bank of Canada Cuts Interest Rate to 3% and Ends Quantitative Tightening

Bank of Canada Cuts Interest Rate to 3%, Ends Quantitative Tightening

The Bank of Canada has reduced its benchmark interest rate by 25 basis points to 3% and announced the end of quantitative tightening. Effective January 30, the Bank’s overnight rate is 3%, with the Bank Rate at 3.25% and the deposit rate at 2.95%.

Economic Outlook

The global economy is expected to grow at 3% over the next two years, though uncertainty remains due to potential U.S. trade tariffs. While the U.S. economy is strengthening, the eurozone faces pressures, and China’s short-term growth is supported by policy measures. The Canadian dollar has weakened due to trade uncertainty.

In Canada, previous rate cuts have boosted consumer spending and housing, though business investment remains weak. The labor market is still soft, with unemployment at 6.7%, though wage pressures are easing. GDP growth is forecast at 1.8% for both 2025 and 2026, with slower population growth limiting potential gains.

Inflation and Policy Considerations

Inflation remains near 2%, with shelter price inflation gradually easing. The Bank sees balanced risks but warns that prolonged U.S. trade disputes could slow growth and raise prices. Lower rates are expected to support household spending and economic recovery.

What’s Next?

The Bank will monitor economic developments closely, with the next rate announcement on March 12, 2025, and a full economic outlook in the April 16, 2025, Monetary Policy Report.