In its final meeting of 2025, the Bank of Canada cut its key interest rate by 0.50%, the 5th consecutive reduction this year since the cycle of interest rate easing began in June.  This also marks the 2nd “jumbo” cut of 0.50% in a row and brings the total cuts so far to 1.75%.

Most economists had expected this cut after Statistics Canada reported the unemployment rate jumped to 6.8% last week, the highest it’s been in almost eight years, excluding the pandemic. The Bank made a 0.50% cut at its last meeting in October, citing softness in the labour market, concerns about economic growth and upside risks of inflation subsiding, as the main reasons for the larger move.  In addition to the rise in the unemployment rate in November, GDP growth in the third quarter came in at one percent, below the central bank’s forecast of 1.5 per cent and inflation hit two per cent in October. There are many headwinds slowing down the economy in Canada, from the threat of tariffs, changing immigration policies, a weak dollar and record government deficits.
 
Going forward into 2025, the Bank’s further direction will be ‘data dependent’ as has been the theme for the last year.  Bank of Canada Governor Tiff Macklem stated that the central bank has opted for two large rate cuts in a row because economic growth doesn’t need to be restricted any further by higher than normal interest rates. However, he signalled that the pace of cuts will likely slow down in 2025 with several more 0.25% reductions still projected. Whatever does end up happening in the Canadian and global economy, 2025 will certainly be an interesting year for the housing market.


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