This article written in french by Nicholas Pereira was automatically translated using AI
On March 12, the Bank of Canada announced that it was lowering the target for the overnight rate to 2.75%.
This represents a 0.25% decrease from the previous rate of 3%.
The official discount rate stands at 3%, while the deposit rate is at 2.70%.
The Bank notes that the Canadian economy started 2025 in a strong position, with inflation close to the 2% target and robust GDP growth.
However, increased trade tensions and tariffs imposed by the United States are expected to slow economic activity and drive inflationary pressures higher in Canada.
Global Situation
In the United States, the economy appears to have slowed in recent months after a period of strong expansion, and inflation remains slightly above target.
In the Eurozone, economic growth was modest at the end of 2024.
In China, the economy has grown significantly, supported by government actions. Stock markets have declined, and bond yields have dropped as markets have lowered their expectations for North American growth.
Oil prices have been volatile and are below the levels projected in the January Monetary Policy Report. The value of the Canadian dollar remains largely unchanged against the U.S. dollar but has depreciated relative to other currencies.
In Canada
Here, the economy grew by 2.6% in the fourth quarter of 2024, following an upwardly revised growth rate of 2.2% in the third quarter. This growth trajectory is higher than projected in the January report.
Previous interest rate cuts have stimulated economic activity, particularly in consumer spending and the housing market. However, growth in the first quarter of 2025 is expected to slow as escalating trade conflicts weigh on confidence and activity.
Recent survey results indicate a sharp decline in consumer confidence, with businesses cutting back on spending by postponing or canceling investment projects. The negative impact of weakening domestic demand has been partially offset by a strong increase in exports in anticipation of new tariffs taking effect.
Employment growth strengthened from November through January, with the unemployment rate falling to 6.6%. In February, job growth stagnated.
Although past interest rate cuts have boosted labor demand in recent months, warning signs suggest that rising trade tensions could hinder the labor market’s recovery. At the same time, wage growth has shown signs of moderation.
Inflation remains close to the 2% target. Although the temporary suspension of the GST and HST lowered some consumer prices, CPI inflation was slightly higher than expected in January, reaching 1.9%. It is expected to rise to around 2.5% in March due to the end of the GST and HST holiday.
The Bank’s preferred core inflation measures remain above 2%, mainly due to persistently rising housing costs. Short-term inflation expectations have increased due to concerns about the impact of tariffs on prices.
The next scheduled date for setting the target for the overnight rate is April 16. (N.P.)
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