Bank of Canada Lowers Policy Rate to 2.25%

General Kim Franz 29 Oct

Bank of Canada Lowers Policy Rate to 2.25%
Today, the Bank of Canada lowered the overnight policy rate by 25 bps to 2.25% as was widely expected. This is the bottom of the Bank’s estimate of the neutral overnight rate, where monetary policy is neither expansionary nor contractionary. The economy will grow at about a 0.5% pace in Q3, causing the Bank to cut rates again at the final meeting this year on December 10. The easing will then end, but rates will remain relatively subdued until more trade uncertainty is alleviated.

The Fed is widely expected to cut rates by 25 bps this afternoon as well.

Today’s Monetary Policy Report suggests that the significant decline in export growth will persist for some time. Layoffs in trade-dependent sectors have already slowed considerably, especially in Ontario, Quebec, and some softwood lumber businesses in several provinces. The central bank acknowledged that “because US trade policy remains unpredictable and uncertainty is still higher than usual, this projection is subject to a wider-than-normal range of risks.”

“In the United States, economic activity has been strong, supported by the boom in AI investment. At the same time, employment growth has slowed and tariffs have started to push up consumer prices. Growth in the euro area is decelerating due to weaker exports and slowing domestic demand. In China, lower exports to the United States have been offset by higher exports to other countries, but business investment has weakened.  Global financial conditions have eased further since July and oil prices have been fairly stable. The Canadian dollar has depreciated slightly against the US dollar.”

“Canada’s economy contracted by 1.6% in the second quarter, reflecting a drop in exports and weak business investment amid heightened uncertainty. Meanwhile, household spending grew at a healthy pace. US trade actions and related uncertainty are having severe effects on targeted sectors, including autos, steel, aluminum, and lumber. As a result, GDP growth is expected to be weak in the second half of the year. Growth will get some support from rising consumer and government spending and residential investment, and then pick up gradually as exports and business investment begin to recover.”

Canada’s labour market remains soft, and job vacancies have declined sharply despite the September improvement in job growth. Job losses continue to mount in trade-impacted sectors, and hiring has been weak across the economy. The unemployment rate remained at 7.1%, well above the US rate of 4.3%. Slower population growth translates into fewer new jobs and less inflation pressure. On a per capita basis, the economy is already in a recession.
The Bank projects GDP will grow by 1.2% in 2025, 1.1% in 2026 and 1.6% in 2027. Quarterly, growth strengthens in 2026 after a weak second half of this year. Excess capacity in the economy is expected to persist and be gradually absorbed.

“CPI inflation was 2.4% in September, slightly higher than the Bank had anticipated. Inflation excluding taxes was 2.9%. The Bank’s preferred measures of core inflation have been sticky around 3%. Expanding the range of indicators to include alternative measures of core inflation and the distribution of price changes among CPI components suggests underlying inflation remains around 2.5%. The Bank expects inflationary pressures to ease in the months ahead and CPI inflation to remain near 2% over the projection horizon”.

“If inflation and economic activity evolve broadly in line with the October projection, the Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. If the outlook changes, we are prepared to respond. Governing Council will be assessing incoming data carefully relative to the Bank’s forecast.”

Bottom Line

The Bank of Canada has shown its willingness to bolster the Canadian economy amid unprecedented trade uncertainty. While Canada is working hard to establish alternate trade partners, even China cannot replace the US in terms of proximity and cost-effectiveness, given the huge transport costs. China has stepped up its oil purchases to record levels, but larger oil flows east will require additional pipelines to BC. There is no market the size of the US market to replace exports of steel and aluminum. The US will also suffer from the economic impact of stepping away from the Canada-US-Mexico free trade deal. A renegotiation of the contract is likely to come before the end of next year. As of now, the US is signalling their desire to exit the agreement. We can only hope that cooler heads will prevail.

The auto industry is a case in point. Onshoring non-US auto production would require a 75% increase in US production and the construction of $50 billion in new factories. This would take years and significantly reduce the profitability of US auto companies.

Canada is the US’s number one supplier of steel and aluminum, with its competitively low hydroelectric costs. It will take time for the US to create the capacity to replace aluminum imports from Quebec.

Canada is the number one trading partner for 32 American states, many of which are lobbying Washington to end this CUSMA bashing.

It will take time for Canada to adjust to this new reality, which leads us to conclude that another cut in overnight rates is probable at the next decision date on December 10.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

B.C. housing bill focuses on multi-units, publicizing short-term rental penalties

General Kim Franz 14 Oct

The British Columbia government is proposing changes to its short-term rental laws, including allowing for compliance orders and penalties to be published to deter people from breaking the rules.

Housing Minister Christine Boyle tabled an omnibus housing bill in the legislature, which would make changes to multiple pieces of legislation including the Local Government Act, the Vancouver Charter and the Short-Term Rental Accommodation Act.

Along with the short-term rental changes, the government says the bill would ensure all local governments are meeting small-scale, multi-unit housing requirements that allow for more forms of housing, such as triplexes, row homes and townhouses.

The Housing Ministry says in a statement that the changes will prevent local governments from putting in restrictions that “make it more difficult to build anything other than single-family or duplex housing for communities with more than 5,000 people.”

The changes would also ensure that housing development isn’t limited because a city has rules on parking spaces per unit.

Boyle told reporters at the legislature that the majority of B.C. communities are implementing the province’s rules to build more homes to ease the housing crisis.

“There are a number of communities where there has been a bit more resistance, or where we’re seeing challenges around implementation, and the priority here is consistent implementation across municipalities,” she said after tabling the bill on Thursday.

“These tools will allow us to work with those local governments and push if needed, to make sure that the regulations are applied consistently and that more housing options are available in every community across B.C.”

Cori Ramsay, the president of the Union of B.C. Municipalities, said she expects local governments are going to be disappointed that the province continues to “centralize decision making for housing in Victoria.”

Ramsay, who is a city councillor in Prince George, said Thursday that requiring the same approach to density in all parts of a community drives up the cost for water, sewer and other core services.

“We all have different needs and the ability to maintain local planning at the local level, with local leaders who are in touch with residents, who know their communities, that is essential. That is part of that long-term infrastructure planning process,” she said.

Centralizing decision making around housing from the B.C. legislature takes away from the local residents and leaders being able to make those land-use decisions, she said.

Ramsay said it will have “negative consequences for local government across the province, and it’s going to result in significantly higher infrastructure costs for us.”

Written by The Canadian Press