CA Overnight Rate

Good morning. I’m pleased to be here with Senior Deputy Governor Carolyn Rogers to discuss our policy decision and the Monetary Policy Report (MPR). Today, we lowered the policy interest rate by 25 basis points. This is our sixth consecutive decrease and brings our policy rate to 3%. We also announced our plan to complete the normalization of our balance sheet, ending quantitative tightening. The Bank will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes this year and then begins to grow modestly in line with economic growth. We have three main messages this morning. First, inflation has been close to the 2% target since last summer. Monetary policy has worked to restore price stability. Second, lower interest rates are boosting household spending, and economic activity is picking up. Third, the potential for a trade conflict triggered by new US tariffs on Canadian exports is a major uncertainty. This could be very disruptive to the Canadian economy and is clouding the economic outlook. post: BOC'S GOV. MACKLEM: MONETARY POLICY CANNOT OFFSET TARIFFS BUT CAN HELP THE ECONOMY ADJUST. post: BOC'S GOV. MACKLEM: LONG-LASTING AND BROAD-BASED TRADE CONFLICT WOULD BADLY HURT ECONOMIC ACTIVITY IN CANADA. post: BOC'S GOV. MACKLEM: WITH INFLATION BACK AROUND THE 2% TARGET, WE ARE BETTER POSITIONED TO BE A SOURCE OF ECONOMIC STABILITY. post: BOC'S GOV. MACKLEM: WE CAN'T USE RATES TO LEAN AGAINST WEAKER OUTPUT AND HIGHER INFLATION AT THE SAME TIME.

The economic outlook presented in this Monetary Policy Report does not incorporate any new US taris, although it does recognize that the threat of taris is already aecting nancial markets and business decisions. This assumption reects a situation that is evolving rapidly, along with the high degree of uncertainty around whether wide-ranging taris will be imposed and the specics of those taris and any possible retaliation. A detailed discussion of how the Canadian economy could be impacted if signicant new taris were to be imposed, including an illustrative scenario, can be found in In focus: Evaluating the potential impacts of US taris. Overview Ination in Canada has been around 2% since August 2024. Ination rates for most major components of the consumer price index are below their historical averages, but ination in shelter prices is elevated and is easing slowly. Ination expectations have largely normalized. Ination is projected to be volatile through March, reecting the eects of the GST/HST holiday on some goods and services. Ination is expected to remain near the 2% target over the projection horizon. Growth in the Canadian economy was softer than expected in the third quarter of 2024, but there are signs activity has since gained momentum despite a slowdown in population growth. Past interest rate cuts are contributing to an increase in household spending and housing activity. The labour market is still soft, and there are some signs that wage growth has slowed. The economy remains in modest excess supply. Canadian economic post: BOC: ANNUALIZED Q4 GDP SEEN AT 1.8% (VS 2.0% IN OCTOBER), Q1 2.0%. post: BOC: INFLATION TO AVERAGE 2.3% IN 2025 (VS 2.2% IN OCTOBER), 2.1% IN 2026 (VS 2.0%). post: BOC FORECASTS DO NOT TAKE INTO ACCOUNT FOR THE POTENTIAL EFFECT OF US TARIFFS. post: BOC: POTENTIAL OUTPUT GROWTH IS EXPECTED TO SLOW FROM 2.5% IN 2024 TO AROUND 1.5% ON AVERAGE OVER 2025 AND 2026, DOWN FROM OCTOBER FORECAST OF 1.9% IN 2025 AND 2026.

The Bank of Canada today reduced its target for the overnight rate to 3%, with the Bank Rate at 3.25% and the deposit rate at 2.95%.1 The Bank is also announcing its plan to complete the normalization of its balance sheet, ending quantitative tightening. The Bank will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly, in line with growth in the economy.2 Projections in the January Monetary Policy Report (MPR) published today are subject to more-than-usual uncertainty because of the rapidly evolving policy landscape, particularly the threat of trade tariffs by the new administration in the United States. Since the scope and duration of a possible trade conflict are impossible to predict, this MPR provides a baseline forecast in the absence of new tariffs. In the MPR projection, the global economy is expected to continue growing by about 3% over the next two years. Growth in the United States has been revised up, mainly due to stronger consumption. Growth in the euro area is likely to be subdued as the region copes with competitiveness pressure post: BOC: RATE CUTS ARE STARTING TO BOOST ECONOMY; RECENT STRENGTHENING IN BOTH CONSUMPTION AND HOUSING ACTIVITY IS EXPECTED TO CONTINUE. post: BOC: CPI INFLATION WILL BE AROUND THE 2% TARGET OVER THE NEXT TWO YEARS. post: BOC ANNOUNCES AN END OF QUANTITATIVE TIGHTENING, AND WILL GRADUALLY RESTART ASSET PURCHASES IN EARLY MARCH. post: BOC: IF BROAD-BASED AND SIGNIFICANT TARIFFS WERE IMPOSED, THE RESILIENCE OF CANADA'S ECONOMY WOULD BE TESTED.