Bank of Canada drops interest rates again

The Bank of Canada has reduced interest rates again.

The agency cut rates by half a percentage point, but at the same time suggested any further easing could be slowed by a less-than-stellar outlook on the Canadian economy.

The Bank of Canada rate, which dropped for a fifth consecutive time, now stands at 3.25 per cent, a move most economists were expecting.

Governor Tiff Macklem defended the move, saying they’ve worked to dial back inflation to a two per cent target, with the goal now to keep it in that range. However, the threat of a 25 per cent tariff on all incoming goods, raised by incoming U.S. president Donald Trump, is a concern.

Canada’s slowing economy is also worrisome, Macklem said.

“Canada’s economy grew by one per cent in the third quarter, which was slower than we expected. Recent data also suggest growth will be lower than projected in the final quarter of this year,” Macklem said.

“Growth in the third quarter was pulled down by business investment, inventories and exports. But consumer spending and housing activity both picked up, as lower interest rates started to boost household spending.”

Macklem pointed out that Canada’s job market is softening, with the number of people looking for work now outstripping the number of available positions. Gross domestic product growth in 2025 is expected to be lower than forecast just two months ago and reduced immigration will dampen both supply and demand in the economy.

The planned HST holiday, which begins on Dec. 14, will help temper some of that negativity, but aren’t sustainable.

“Other federal and provincial government policies—including a temporary GST break on some consumer products, one-time payments to individuals, and changes to mortgage rules—will likely affect the dynamics of household spending and inflation in the months ahead. Again, we will have more to say on this in January,” Macklem said.

“As always, we will look through effects that are temporary and focus on underlying trends to guide our policy decisions.

He did confirm the Bank of Canada is still considering future interest rate cuts. Interest rates hit five per cent in 2023, the highest they were before the 2008-2009 global financial crisis, and the Bank of Canada raised rates 10 times between March 2022 and July 2023. They reached an all-time high of 16 per cent in 1991. The record low was 0.25 per cent, last realized in February 2022.

As a result, TD Canada Trust announced it planned to follow suit and drop its prime rate to 5.45 per cent, equalling the 50 basis-point drop by the Bank of Canada. The change is effective on Dec. 12.  – tbnewswatch.com

article website here

Sooo why can’t Canadians get the Bank of Canada to issue them a mortgage at 3.25%?  Why do people have to go to a middle-man bank which ups the interest rate to 5.45%?  Why?

In the US, the Federal Reserve buys US Treasury bonds providing the US Government with a source of limitless cash which will never have to be paid back.  Free money.

Does the same thing happen here in Canada?  Is the Bank of Canada buying Canadian Government bonds?  The answer is yes.

The impact of the Bank of Canada’s Government Bond Purchase Program

…from Perplexity.ai

Yes, the Bank of Canada owns a significant amount of Canadian government bonds. As of March 2023, the Bank of Canada held approximately $333 billion worth of Government of Canada (GoC) bonds

This large-scale bond ownership is a result of the Government of Canada Bond Purchase Program (GBPP), which was initiated in March 2020 in response to market disruptions caused by the COVID-19 pandemic

Sooo, if the Government of Canada can get a loan from the Bank of Canada, at what I assume to be  an extremely good interest rate, then why can’t the people that fund the government get the same deal? We own the Bank Of Canada.

—from Perplexity.ai

The Bank of Canada is not privately owned but is a publicly owned institution

 It is structured as a Crown corporation, which means it is wholly owned by the federal government of Canada

.Initially, when the Bank of Canada opened its doors in March 1935, it was established as a privately owned institution with shares sold to the public

However, this arrangement was short-lived. In 1938, the Bank of Canada was nationalized through an amendment to the Bank of Canada Act, transforming it into a publicly owned entity

.As a Crown corporation, the Bank of Canada operates independently from the government in terms of its monetary policy decisions, despite being government-owned

This structure allows the bank to maintain its autonomy while still being accountable to the Canadian public.

We own the bank!