The headline: half a percent off
On December 11, 2024, the Bank of Canada lowered its policy rate by 50 basis points — that's half a percentage point — bringing it down to 3.25%. The Bank Rate sits at 3.75%, and the deposit rate matches the policy rate at 3.25%. They're also continuing to shrink their balance sheet, a process called normalization.
This marks the latest in a series of cuts that started back in June. The Bank is moving deliberately, and they're not done yet — but they're taking it one meeting at a time.
What's happening outside Canada
Globally, things are playing out roughly as the Bank expected back in October. The U.S. economy is still humming along with strong consumer spending and a solid job market, though inflation has plateaued and some price pressures aren't budging. Over in Europe, growth looks weaker than expected. China is propping up its economy with policy tweaks and strong exports, but households there are holding back on spending.
Financial conditions worldwide have loosened up a bit, and the Canadian dollar has slipped as the U.S. dollar flexes its strength across the board.
What's happening here at home
Canada's economy grew 1% in the third quarter of 2024 — a bit slower than the Bank projected in October. The fourth quarter is shaping up to be softer, too. Business investment, inventories, and exports dragged down Q3 growth. But consumer spending and housing both picked up, which suggests lower interest rates are starting to work their way into household budgets.
Historical revisions to the National Accounts bumped up GDP levels over the past three years, mostly thanks to higher investment and consumption than originally reported. Meanwhile, the unemployment rate climbed to 6.8% in November as job growth lagged behind the number of people looking for work. Wage growth is still elevated compared to productivity, though there are early signs it's cooling off.
Policy changes that complicate the picture
A handful of federal and provincial measures are reshaping the near-term outlook. Lower immigration targets mean GDP growth next year will likely come in below the Bank's October forecast. The impact on inflation should be more muted, since fewer people affects both demand (spending) and supply (workers and output).
Other policies — like the temporary GST suspension on some consumer goods, one-time payments to individuals, and changes to mortgage rules — will shift the timing and shape of demand and inflation. The Bank plans to look past the temporary noise and focus on the underlying trends.
On top of that, there's fresh uncertainty around potential new tariffs from the incoming U.S. administration on Canadian exports, which clouds the economic outlook even further.
Inflation is holding steady around 2%
Inflation has hovered around 2% since the summer and is expected to stay close to the Bank's target over the next couple of years. The upward push from shelter costs and the downward pull from cheaper goods have both eased off as expected since October.
The GST holiday will temporarily knock inflation lower, but that effect will reverse once the break ends. The Bank will use core inflation measures to track the real trend beneath the headline number.
Why they cut, and what comes next
With inflation near 2%, the economy running below capacity, and recent data tilting toward softer growth, the Governing Council decided another 50-basis-point cut made sense. The goal: support growth and keep inflation steady in the middle of the 1-3% target range.
Since June, the Bank has cut rates substantially. Going forward, they'll decide whether to keep cutting one meeting at a time, guided by incoming data and what it means for the inflation outlook. They remain committed to keeping inflation close to 2%.
The next rate announcement is scheduled for January 29, 2025, when the Bank will also release its updated Monetary Policy Report with a fresh economic outlook and risk assessment.
What this means for you
If you're carrying a variable-rate mortgage, you've already seen relief this year — and there may be more on the way. If you're renewing soon or shopping for a new mortgage, these rate cuts open up options worth exploring. The landscape is shifting fast, and timing matters.
Reach out to Matt Broom-Hall at [matt@hellomortgage.ca](mailto:matt@hellomortgage.ca) to walk through your situation and figure out your best move.
