Central bank cuts rate but warns policy support may be near its limit amid ongoing economic uncertainty
Canada’s central bankers have signalled that the era of aggressive rate cuts may be over, even as the economy faces persistent trade shocks and a soft labour market, according to minutes from the Bank of Canada’s latest meeting, as reported by Reuters.
Policymakers opted to cut the policy rate by 25 basis points to 2.25 percent. The Bank of Canada described this move as “on the stimulative side” of neutral.
According to a summary of deliberations cited by Bloomberg, policymakers made this decision after weighing the risks of waiting for more clarity on federal fiscal policy and US trade developments.
The Bank stated, “the arguments for cutting the policy rate in October were considered more salient” due to continued excess supply, labour market weakness, and tepid growth projections.
However, the governing council made it clear that monetary policy is “likely close to the limits of what it could do to support the economy in the current circumstances,” as per the Bank’s official summary.
The council also noted that future moves would depend on whether inflation and economic activity evolve in line with projections.
As reported by the Financial Post, members were prepared to adjust the policy rate if new information changed the outlook materially.
The Bank’s decision followed another 25 basis point cut in September, reflecting ongoing concerns about the impact of US tariffs and global trade uncertainty on key Canadian sectors such as steel, automotive, and lumber, as detailed in the Bank’s statement.
The effects of the trade war have become more apparent in employment data, with job losses concentrated in trade-related industries and a “soft” labour market, according to the Bank.
Despite these challenges, Bloomberg reported that Statistics Canada reported that the economy added 66,600 jobs in October, marking the second consecutive month of stronger-than-expected employment and a drop in the jobless rate to 6.9 percent.
Inflation is projected to remain close to the two per cent target, though the Bank noted a “wider-than-normal range of risks and uncertainties” around price pressures, including ongoing trade negotiations and fiscal measures.
The Canadian dollar strengthened to its highest level this month following the Bank’s announcement, as investors interpreted the minutes as a signal that the easing cycle is likely on pause, reported by Reuters.
Meanwhile, Canadian bond yields declined, tracking moves in US Treasuries, and oil prices fell after OPEC projected global supply would match demand by 2026.
Looking ahead, the Bank of Canada’s next interest rate decision is scheduled for December 10, as per the Bank’s official communication.
