Wednesday January 29, 2025 | VICTORIA, BC [Posted at 6:50 am Pacific | Updated January 31, 2025]
by Mary P Brooke | Island Social Trends
Link to the live webcast January 29, 2025
A drop of 25 basis points in the Bank of Canada’s interest rate was expected by many observers of things economic, and today that has happened.
The rate is now 3.0%, down from 3.25%. This is the sixth rate drop since April 2024.
Today’s quarter-point drop may not be enough — both functionally and psychologically — if economic resilience is the goal.
There may have been additional benefit to the economy if the rate had dropped by 50 basis points to 2.75%.
Today the bank indicated that this could be the end of their reduction cycle, i.e. no further rate drops for a while. But this seems overly cautious given the uncertainty that tariffs will cause across the Canadian economy.
Three key points:
Bank of Canada Governor Tiff Macklem has said today:
- Inflation has been close to the 2% target since last summer.
- Lower interest rates are boosting household spending and economic activity is picking up.
- The potential for a trade conflict is a major uncertainty. This could be very disruptive to the Canadian econ and is clouding the economic outlook.
Impact of tariffs:
“Tariffs mean economies work less effectively,” said Macklem today. A lower interest rate helps the economy adjust to new developments, he said today.
![tiff macklem, carolyn rogers](https://islandsocialtrends.ca/wp-content/uploads/2025/01/CarolynRogersTiffMAcklem-Jan2925.jpg)
Tariffs would have an initial impact on the Canadian economy but would not be expected to cause persistent inflation, said Macklem today.
Rates in 2024:
The previous Bank of Canada December 11, 2024 rate announcement — the last of 2024 — featured a 50 basis point drop.
The Bank of Canada says this drop is “to support growth and keep inflation close to the middle of the 1-3% target range”.
After the central bank rate holding at 5% from July 12, 2023 to June 5, 2024, here is what has happened with the Bank of Canada rate in 2024:
- On June 5 the rate was lowered by 25 basis points from 5% to 4.75%.
- Then on July 24 the rate was dropped a further 25 basis points to 4.5%.
- On September 4 the rate was dropped another 25 basis points to 4.25%.
- On October 23 the rate was dropped 50 basis points to 3.75%.
- On December 11 the rate has been dropped by 50 basis points to 3.25%.
Trying to restore people’s lives:
Economic conditions are relatively stagnant and productivity continues to fall short of what the economy needs.
The looming likelihood of US tariffs is on the immediate horizon (February 1 date for that). “This is a major new uncertainty,” said Bank of Canada Governor Tiff Macklem during the bank’s December 11, 2024 rate announcement.
Today the Bank in their statement at 6:45 am (Pacific) said: “Setting aside threatened US tariffs, the upside and downside risks around the outlook are reasonably balanced. However, as discussed in the MPR, a protracted trade conflict would most likely lead to weaker GDP and higher prices in Canada.”
Over the past couple of years, small and medium size businesses have been expressing concern as have most households who have suffered the inflation-driven increased cost of nearly everything since the pandemic.
Bank of Canada interest rates that pumped up higher and higher starting in spring 2022.
Strained sense of some relief:
Today’s rate decrease will be welcomed by households and small businesses but it seems like a little bit of help that comes a lot too late.
The housing market may feel some relief, but may also wait even longer before committing to financing for major development projects.
The GST tax holiday for two months (December 14, 2024 to February 15, 2025) will bring a modest short-term consumer benefit. The benefit to business will be marginal given the overhead cost to temporarily adjust POS systems, deal with accounting system variation at year-end 2024 and again in 2025, and the loss of the usual short-term benefit to holding the GST before remittance.
Still challenged:
Other than households and businesses carrying variable interest rate financial services (loans and lines of credit), most people have not directly benefited from the four rate drops already seen this year.
Credit card companies don’t automatically respond with interest rate reductions. People with fixed rate mortgages are not impacted until it comes time for renewal.
The price of nearly everything has been pushed up by inflation for over two years, causing a real decline in household disposable income.
Some might think that lowering the rate would help spur activity but there is very little ‘juice’ left in the economy for anything but cautious financial decisions.
The Bank of Canada repeatedly states their aim to try (by using their blunt tool of setting the central bank interest rate) to keep the rate of inflation within their target inflation range of 2% to 3%.
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Looking ahead in 2025:
While today’s rate drop will moderately help some sectors, it will for some seem too little, too late.
Having a target “adds an important anchor to the whole system”, said Macklem last month. But that may be a psychology better applied to normal economic times.
The Bank of Canada 2025 schedule for policy interest rate announcements is as follows.
- Wednesday, January 29 (today)
- Wednesday, March 12
- Wednesday, April 16
- Wednesday, June 4
- Wednesday, July 30
- Wednesday, September 17
- Wednesday, October 29
- Wednesday, December 10
Time on the clock:
All interest rate announcements are scheduled to take place at 9:45 am Eastern time (6:45 am Pacific), and the Monetary Policy Report will be published concurrently with the January, April, July and October rate announcements.
===== RELATED:
- Significant interest rate drop needed on Jan 29 (January 6, 2025)
- Last interest rate announcement of 2024 coming up December 11 (December 4, 2024)
- Canada’s Premiers discuss border & tariffs with Trudeau (November 27, 2024)
- GST winter tax holiday misses political mark, frustrates businesses, and fails many families (November 23, 2024)
- Bank of Canada half-point interest rate drop (October 23, 2024)
- Bank of Canada lowers interest rate to 4.25% (September 4, 2024)
- Bank of Canada drops interest rate for 2nd time in 2024 (July 24, 2024)
- Eby continues to target Bank of Canada about interest rates (July 17, 2024)
- First Bank of Canada rate drop in four years (June 5, 2024)
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