The Bank of Canada implemented another oversized interest-rate cut on Wednesday as part of an ongoing monetary easing policy.

The 50-basis-point cut marks the central bank’s fifth consecutive reduction since the summer of 2024 after a lengthy period of hikes and holds, bringing the overnight lending rate to 3.25% from its former 3.75% level. BoC Governor Tiff Macklem continues to display a much more dovish stance on interest rates than he did in early 2024 and all of 2023.

“We anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected,” said Macklem. “Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook.”

The BoC said in a news release that it is continuing its policy of balance-sheet normalization.

Most economists had anticipated the reduction, which matches the the October drop.

Until recently, markets had anticipated a more modest 25-bps cut this week. However, a sharp rise in Canada’s unemployment rate to 6.8% in November—the highest outside the pandemic since 2017—shifted expectations.

The recent surge in unemployment and weaker-than-expected GDP growth have led many to see the case for another large cut as compelling.

The lates cut indicates that the BoC is not overly concerned with inflation, which hit the BoC’s 2% target in October and has remained within the bank’s control range throughout the year.

The BoC said inflation’s effects on the economy will likely be more muted in wake of lower immigration levels.

Despite these developments, the Canadian dollar has weakened significantly, trading near a four-year low of 70.6 cents against the U.S. dollar.

“I think one of the most important factors since the last rate adjustment is the fact that GDP numbers for the third quarter were surprisingly weak, which tipped the scales in favour of more – and faster – cuts” said Peter Norman, an Altus Group vice-president. “Yes, the [Consumer Price Indix] number crept up in October, but not to a worrisome level, so a smaller cut still seemed unlikely heading into this announcement.”

But Altus said sentiment has begun to lift across the Canadian real estate market – especially with the bid-ask gap between buyers and sellers narrowing.

But Ray Wong, another Altus Group vice-president, said it will still take some time for commercial real estate companies to get settled again and start making deals with confidence. He expects the BoC to make more rate cuts in 2025 but predicts that each rate will ultimately depend on what the U.S. Federal Reserve does.

The Fed has been slow to make cuts, and the two central banks usually stay closely aligned on monetary policy.

“The bid-ask gap is slowly closing, and I think we’re going to see steady increases in activity next year, as a reflection of this year’s rate decisions,” said Wong, referring to the Canadian market. “Some owners and investors may try to get into the market a little earlier than their competitors, in which case they may come to the table with a slightly higher price to meet the bid-ask gap to secure certain properties.”

Core assets will always get investors’ attention, he added.

“But ultimately, I think we are looking at a slow and measured start to 2025,” said Wong.

Pictured: Bank of Canada Governor Tiff Macklem

Photo: Bank of Canada