Commentary
The Bank of Canada will announce its decision on its key interest rate on Dec. 11. The general view of market watchers, as recently as a week ago, was that the bank would cut the rate by 25 basis points, to 3.5 percent from 3.75 percent. After the latest unemployment figures, many are now predicting a cut of 50 basis points.
The Canadian economy has been mathematically growing overall in terms of GDP, albeit anemically. When looking at GDP per capita, the economy has contracted the last six quarters in a row. Do the 25- or 50- basis point forecasts still hold? Will lower rates help the economy significantly? Let’s look at the current situation.
Inflation has come down to 2 percent, which is effectively the bank’s target rate it set when inflation was approaching double digits in 2022. Although this may seem impressive, a 2 percent inflation rate is less a result of outstanding economic stewardship when one realizes that Canada has been in a state of economic sclerosis for years. Our present environment is closer to a depression than a normal period of growth.
