BoC expected to lower interest rates again, with odds leaning toward larger cut

OTTAWA -

Financial markets and forecasters are betting on another jumbo interest rate cut from the Bank of Canada this week, which would bring its key rate down to 3.25 per cent.

Statistics Canada's latest job report tilted expectations in favour of half-percentage point cut.

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The Friday report revealed the unemployment rate jumped to 6.8 per cent in November, up from 6.5 per cent a month earlier, as more people looked for work.

The agency noted the unemployment rate reached its highest level since January 2017, outside of the COVID-19 pandemic.

CIBC Capital Markets chief economist Avery Shenfeld justified a larger cut by pointing to the fact that forecasters expect the central bank to bring its key interest rate down to three per cent or less in the coming months, anyway.

"If so, there's no reason to think that cutting 50 basis points, to 3.25 per cent, could be overdoing it," wrote Shenfeld on Friday.

"So 'why not' get there next week, rather than early next year, if we're going to end up needing even more interest rate relief in 2025? Why not give the economy more of what it needs a bit earlier?"

The Bank of Canada reduced its key rate by half a percentage point in October in response to inflation returning to target, but signalled the size of the next rate decision would be data-dependent.

Canada's inflation rate was two per cent in October.

The central bank is also concerned about lacklustre economic growth and has said it wants to see the economy pick back up again.

The Canadian economy in the third quarter shrank on a per-person basis for a sixth consecutive quarter, extending an all-too-familiar trend of high interest rates stifling business investment and constraining growth.

Real gross domestic product grew at an annualized rate of one per cent in the third quarter, down from 2.2 per cent in the second quarter.

The figure was in line with economists' expectations, but lower than the Bank of Canada's October forecast of 1.5 per cent.

This report by The Canadian Press was first published Dec. 9, 2024.