Economic Struggles.
Some sectors, like home resales and spending on durable goods, showed slight improvement in the third quarter. However, overall economic growth remains weak. Canada’s GDP growth has fallen short of the BoC’s earlier forecasts, and GDP per person has now declined for six consecutive quarters.
The labour market is also under pressure. Unemployment has risen to 6.8%, the highest level since 2017 (excluding the pandemic years). For context, when unemployment was at a similar level in 2017, the BoC’s interest rate was just 1.00%, compared to today’s 3.25%.
Inflation Under Control.
Inflation isn’t as much of a concern anymore. For most of 2024, the growth in consumer prices has stayed at or below the BoC’s 2% target. However, the current interest rate is still at the top end of what the BoC considers a neutral range (2.25%–3.25%), and it’s much higher than the pre-pandemic peak of 1.75%.
What’s Next?Inflation Under Control.
The rate cut signals that the BoC is easing up on its tight monetary policy, but it’s not yet actively trying to stimulate the economy. Experts believe more rate cuts are coming, with the overnight rate likely falling below the neutral range to about 2% by mid-2025.
As the economy continues to soften, the BoC faces a tricky balance: supporting growth without letting inflation rise again. The central bank’s cautious approach suggests a gradual path toward lower rates.
Get to know Kathy Lien.
Meet Kathy, an award-winning Senior Mortgage Broker at Peak Mortgage Company, a boutique brokerage consisting of a team of brokers and underwriters servicing the Lower Mainland.
