Markets brace for a steep 50-basis-point cut in the central bank's final decision of 2024.
The Bank of Canada is expected to cut its policy rate by another 50 basis points on Wednesday, marking its second consecutive outsized reduction. If confirmed, the move will lower the benchmark rate to 3.25%, as the central bank wraps up its final monetary policy decision of the year.
Economists at major banks have shifted their forecasts after Canada’s unemployment rate climbed to 6.8% in November, its highest in nearly eight years, excluding the pandemic.
Benjamin Reitzes, an economist with the Bank of Montreal, stated, “The November employment report effectively ended the debate around the Bank of Canada’s December 11 meeting. Expectations are now firmly on 50 basis points.”
Economic data has supported the case for a substantial rate cut. The third-quarter GDP growth registered at one percent, falling short of the central bank's 1.5 percent projection. While inflation hit the target rate of two percent in October, the labor market has become a primary concern.
Meanwhile, Beata Caranci, chief economist at Toronto-Dominion Bank, believes the Bank should weigh broader economic momentum, including consumer spending and housing market recovery. “I am not a fan of these 50-basis-point moves,” Caranci told the Financial Post, arguing there’s less justification for such action compared to October.
The Bank of Canada’s decision carries additional weight given emerging economic challenges. The threat of potential U.S. tariffs and recent changes to Canada's immigration policies could impact future growth prospects. These factors, combined with current labor market conditions, have led major financial institutions, including BMO and Scotiabank, to revise their forecasts toward a steeper cut.
