The Bank of Canada will cut interest rates by half a percentage point at its second straight meeting on December 11, a majority of economists polled by Reuters said. Many of them changed their minds after news of a sharp rise in unemployment.
The Bank of Canada is already ahead of its peers in terms of the size and speed of interest rate cuts. It cut interest rates by 125 basis points, nearly twice as much as its southern neighbor, the US Federal Reserve, which hit the Canadian dollar. And it has
News that Canada’s unemployment rate had risen to an 8-year high – outside of the pandemic – at 6.8% prompted many forecasters to change their forecast to 50 basis points from 25 basis points. The rise came despite news that twice as many jobs as expected were added. to Canadian payrolls in November.
Nearly 80% of respondents, 21 out of 27, expected the central bank to cut the overnight interest rate by 50 basis points tomorrow, December 11, to 3.25%. The rest expected a quarter-point cut.
While interest rate futures traders were pricing in the larger move, economists claim the decision remains ambiguous, and some who switched to 50 basis points said that does not mean they believe it is the right policy choice.
The inflation rate rose to 2%, the target set by the central bank in October, the first rise in the annual rate since May, but this was in line with the Bank of Canada’s latest forecasts. Signs of improvement in parts of the economy indicate there is a risk of it rising further.
Among the five major Canadian banks, TD Bank expects only 25 basis points.
More than 80% of respondents said the Bank of Canada would cut interest rates by at least another 75 basis points to 2.50% or lower by the end of 2025. This was a stronger majority than more than half in a poll conducted in October.
It is very difficult to predict a potential serious threat to the economy in the coming months. Since the policy meeting in October, US President-elect Donald Trump has threatened to impose 25% tariffs on imports from Canada.
All 11 economists who answered an additional question said a recession was likely if Trump carried out his tariff threat. Eight said the recession would be shallow, while three said it would be severe.
