ANALYSIS: With Interest Rate Now at 4.25 Percent, How Might Future Cuts Unfold?

Although the Bank of Canada decided to cut interest rates for a third time in 2024 in response to lower inflation, governor Tiff Macklem warned that the country is not out of the woods yet.
While the bank’s three rate cuts signal that inflation is on the right path downward, economists warn that housing prices and low productivity could slow that trend and potentially pause further rate cuts.
Di Matteo said Canada’s low productivity, which is a “long-standing issue,” can potentially be remedied by lower interest rates that would boost capital investment. But he said lower interest rates previously “distorted a lot of our investment [in] housing” and other areas of the economy that “might not necessarily enhance productivity.”
“Capital investment is the way to go [to increase productivity], but that has to also be accompanied by some structural reforms in the Canadian economy,” he said. “In the end, our productivity is probably low because we are in an economy that’s always been very comfortable with oligopolies and monopolies.”
Dias said low productivity rates combined with high population growth means that whatever the Bank of Canada decides for its interest rate “is necessarily going to be higher than it would have been if population growth was slower.”