Half-point interest rate cut

UPDATE: 7:30 a.m.

The Bank of Canada lowered its key interest rate by half a percentage point today but signalled a slower pace of rate cuts moving forward.

The decision marked the fifth consecutive reduction since June and brings the central bank’s key rate down to 3.25 per cent.

Forecasters were widely expecting the jumbo interest rate cut after the November labour force survey showed the unemployment rate rose to 6.8 per cent.

Governor Tiff Macklem said in his prepared statement that the central bank opted for two large rate cuts in a row because economic growth doesn’t need to be restricted anymore.

However, he signalled that the pace of cuts will likely slow down.

“The governing council has reduced the policy rate substantially since June, and those cuts will work their way through the economy,” Macklem said.

“With the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected.”

The bank's benchmark rate now sits at the upper bound of the neutral rate range.

The neutral rate, which the central bank estimates is somewhere between 2.25 per cent and 3.25 per cent, reflects a theoretical interest rate that will neither help nor hinder economic growth.

Looking ahead, the central bank says it expects economic growth next year to be weaker than previously forecast due to the federal government’s reduction in immigration.

ORIGINAL 5:43 a.m.

The Bank of Canada is set to make its final interest rate announcement of the year this morning.

Forecasters are widely expecting a half-percentage point interest rate cut.

That would bring the Bank of Canada's key rate down to 3.25 per cent.

The November labour force survey solidified those expectations, as the latest employment figures showed the jobless rate rose to 6.8 per cent.

The central bank lowered its benchmark interest rate by half a percentage point in October in response to inflation returning to its two per cent target.

Governor Tiff Macklem wouldn't say at the time whether the central bank would follow up with another jumbo cut in December, and instead said the decision would be data-dependent.