BANK OF CANADA RATE UPDATE

The Bank of Canada reduces its policy rate by 25 basis points.

The Bank of Canada has reduced its overnight rate by 25 basis points to 2.75%, citing ongoing economic uncertainty driven by trade tensions and slowing global growth.

While inflation remains close to the 2% target, concerns about weakening consumer confidence and business investment have led policymakers to ease borrowing costs further.

For the real estate market, this rate cut could provide a boost, as lower interest rates typically lead to reduced mortgage costs, making homeownership more accessible for buyers.

This could encourage more activity in the housing market, particularly among first-time homebuyers who have been priced out in recent years.

Sellers may also benefit from increased demand, especially in markets where affordability has been a concern.

Recent interest rate cuts have already contributed to stronger economic growth, particularly in consumer spending and housing.

However, the Bank of Canada remains cautious about the impact of global economic uncertainty, including potential tariff changes that could influence inflation and overall market stability.

The next interest rate announcement is scheduled for April 16, 2025, when the Bank will provide a more detailed outlook on the economy and inflation.

In the meantime, homebuyers and sellers can expect borrowing conditions to remain favourable, though market dynamics will continue to be shaped by broader economic factors.

Bank of Canada lowers its policy rate, noting uncertainty surrounding potential U.S. trade tariffs.

On Wednesday, January 29, 2025, the Bank of Canada reduced its target for the overnight lending rate 25 basis points from 3.25% to 3%.

The cut was widely expected by financial markets in the lead-up to the decision, marking the sixth rate reduction since the onset of the pandemic, bringing rates down 2% from where they stood in April 2024.

The Canadian economy has been picking up due to past interest rate cuts and increased activity in consumer spending.

Housing is expected to remain strong. However, business investment and the labour market were noted by the Bank as soft spots in the economic landscape.

The Bank forecasted Canadian Gross Domestic Product (GDP) growth of 1.8% in both 2025 and 2026 in its January 2025 Monetary Policy Report (MPR) but noted the effects of a trade war with the United States were impossible to predict and that these forecasts were provided as a baseline in the absence of any tariffs.

In its MPR the Bank specifically noted regarding housing that lower mortgage rates and recent mortgage rule changes would strengthen resale activity, while pent-up demand for housing would be supportive for new home construction.

However, growth in the supply of new homes in the short term would be constrained by land availability, zoning issues, and a shortage of skilled workers.

The Bank observed underlying inflation is now close to its target of 2% and that it will remain around this target over the next two years. Should a trade war emerge with Canada’s largest trading partner, the United States, the Bank noted “a protracted trade conflict would most likely lead to weaker GDP and higher prices in Canada.”

The Bank replaced its wording surrounding the need for further evaluation of rate reductions with a more stable overview, noting that its cumulative rate reductions have been substantial, but again reiterated the uncertainty surrounding potential tariffs from the U.S.

In its MPR the Bank stated, “in the face of a trade conflict, the response of monetary policy must balance the downward pressure on inflation from excess supply in the economy with the upward pressure on inflation from new tariffs on imports.”

The Bank of Canada will make its next scheduled interest rate announcement on March 12 and publish its full outlook for the economy and inflation in its next Monetary Policy Report on April 16.

The Bank of Canada announces second consecutive policy rate cut.

In a scheduled announcement on Wednesday, July 24th, the Bank of Canada reduced its target once again for the overnight lending rate from 4.75% to 4.5%.

The move was widely expected by financial markets and marked the Bank’s second rate reduction since the onset of the pandemic four years ago, bringing rates down to where they stood in April 2023.

The Bank noted that Canada’s economy picked up in the first half of 2024 but at a slower pace than population growth, while consumer spending and housing are showing signs of weakness.

The Bank continues to note that employment has been rising at a slower pace than working-age population growth, of which the latter is expected to grow at a stronger pace than previously expected.

According to the Bank, Canadian economic growth is forecast to pick up over the remainder of this year and over the course of 2025 “as borrowing costs ease”, implying a continued unwinding of tightness in monetary policy that should provide a boost to exports, household spending, and business and residential investment.

The Bank continues to focus on elevated shelter costs as a significant contributor to inflation. However, it also noted that both headline and core measures of inflation have moderated and are close to historical norms.

In its Monetary Policy Report, the Bank also made special note of several challenges impacting housing supply growth such as municipal zoning restrictions, high development fees, time-consuming permitting processes and shortages of skilled construction workers.

Although excess supply in the economy is lowering inflation, the Bank is also monitoring shelter and services costs which are pushing inflation in the opposite direction. The Bank has stated that “monetary policy decisions will be guided by incoming information” and their assessment of its implications for the inflation outlook.

The Bank of Canada will make its next scheduled interest rate announcement on Wednesday, September 4th and will publish its full outlook for the economy and inflation in its next Monetary Policy Report on Wednesday, October 23rd.

On June 5th, The Bank of Canada lowered its key interest rate by a quarter of a percentage point to 4.75 per cent. This is the first rate cut since March 2020.

The Bank of Canada’s benchmark rate affects borrowing costs for banks, which means they’re able, but not forced, to lower their own lending rates.

Banks are generally quick to increase their prime rate in tandem with Bank of Canada hikes. However, they’ve been less consistent when rates are on the way down. When the central bank last lowered its rate four years ago, banks followed suit within a day.

Once banks move their prime rate down, it will have an immediate effect on borrowers with variable-rate mortgages, just as they’ve felt the brunt of rising rates over the past few years.

For new borrowers planning on arranging a fixed-rate mortgage, a decrease of a quarter percentage point in interest rates will also translate to monthly savings on their mortgage payments.

For instance, a person with a $500,000 mortgage, a 25-year amortization period and an interest rate of 5 percent would save around $72 a month if their rate dropped to 4.75 percent.

This seemingly small adjustment translates into a substantial saving of around $4,320 over a 5-year term!

Lines of credit are also usually tied to bank prime rates, so borrowers should start to see some savings on that front as well.

The next scheduled date for announcing the overnight rate target is July 24, 2024.

The Bank of Canada continues to hold its policy rate at 5% for the fifth time in a row.

In a scheduled announcement on March 6, 2024, the Bank of Canada decided to maintain its target for the overnight lending rate at 5%. This was its fifth consecutive hold after two interest rate hikes last summer.

With the spring season traditionally seeing increased housing market activity, the Bank of Canada was wary of cutting rates, fearing it could exacerbate housing affordability issues by stimulating demand further.

High interest rates have already put a lot of pressure on households, contributing to a cooling economy as it seeks to align supply and demand.

However, inflation is nearing the Bank’s 2% target, with a notable impact from shelter costs, including mortgage interest and rent prices. While a rate cut could alleviate these expenses, it might also risk overheating the housing market.

Real estate professionals and potential buyers are closely watching for any rate changes, indicating that a decrease could lead to a surge in market activity and prices.

The Bank of Canada’s next scheduled interest rate announcement will be on April 10th.

The Bank of Canada holds the policy rate at 5% in its first decision of 2024.

In a scheduled announcement on January 24, 2024, the Bank of Canada decided to maintain its target for the overnight lending rate at 5%. This was its fourth consecutive hold after two interest rate hikes last summer.

The Bank noted that Canada’s economy had performed sluggishly over the second half of 2023 and anticipated no growth over the first quarter of 2024 before picking up in the second half of this year.

The Bank also stated that “spending by governments contributes materially to growth through the year,” suggesting they will be waiting until the federal government tables the next budget before revising their projections.

The Bank once again cited shelter costs as the largest contributing factor to above-target inflation due to rising mortgage interest and rents, which it does not expect to return to its 2% target until next year.

Although many components of the CPI are showing signs of normalizing, with the Bank noting in its Monetary Policy Report that monetary policy is working as intended to slow growth, core measures are still running higher than the Bank’s preferred range.

The Bank is still concerned about risks to the outlook for inflation, particularly underlying core inflation, and would like to see “further and sustained easing” in this regard while it focuses on economic and other inflationary factors.

The Bank of Canada’s next scheduled interest rate announcement will be on March 6, 2024, and will publish its full outlook for the economy and inflation in its next Monetary Policy Report on April 10, 2024.