Benchmark Rate Now Sits at 4.25%
In a widely expected move, the Bank of Canada has continued the downward trajectory for its benchmark interest rate, reducing it by another quarter point to 4.25%. This marks the third interest rate cut in a row, following a 25-basis point cut in June and another in july, thanks to cooling inflation, which continued its decline to 2.5 per cent in August. However, shelter price inflation, including rent and mortgage interest costs, is still the biggest contributor to total inflation, but the Bank noted that it’s starting to slow.
Interest Rates and the Canadian Housing Market
According to a Leger survey conducted by RE/MAX as part of the 2024 Fall Housing Market Outlook Report, even the mere prospect of lower rates has boosted confidence among first-time homebuyers, with 25 per cent of Canadians actively saving for a home purchase and expressing confidence that they will be able to buy soon. The majority of them are Gen Zs aged 18-24, at 35 per cent.
On the flipside, dropping interest rates now may prove too little, too late for some current homeowners, with 14 per cent of Canadians who will be renewing their mortgage soon feeling that they may need to sell their home in the near future.
Much like 2023, the housing market in 2024 has been unpredictable – especially in the first half of the year, which was expected due to the interest rate environment. Now that rates are dropping, and if they continue to do so, that unpredictability should start to ease.
The fall market is usually a good early indicator for activity as we look ahead to early 2025, and we’re headed toward more healthy territory. With interest rates starting to ease, buyers are beginning to come off the sidelines. That’s not to say the fall market will be in full swing according to historic standards. Consumers will drive that trend, so we’ll need to see a bigger move by the Bank of Canada for that to happen.
Bank of Canada’s 2024 Policy Interest Rate Announcement Schedule
Bank of Canada announces its decision for the overnight rate target eight times a year, typically on a Wednesday. The schedule for 2024 is as follows:
- Wednesday, January 24*
- Wednesday, March 6
- Wednesday, April 10*
- Wednesday, June 5
- Wednesday, July 24*
- Wednesday, September 4
- Wednesday, October 23*
- Wednesday, December 11
Read the full interest rate announcement below:
The Bank of Canada today reduced its target for the overnight rate to 4¼%, with the Bank Rate at 4½% and the deposit rate at 4¼%. The Bank is continuing its policy of balance sheet normalization.
The global economy expanded by about 2½% in the second quarter, consistent with projections in the Bank’s July Monetary Policy Report (MPR). In the United States, economic growth was stronger than expected, led by consumption, but the labour market has slowed. Euro-area growth has been boosted by tourism and other services, while manufacturing has been soft. Inflation in both regions continues to moderate. In China, weak domestic demand weighed on economic growth. Global financial conditions have eased further since July, with declines in bond yields. The Canadian dollar has appreciated modestly, largely reflecting a lower US dollar. Oil prices are lower than assumed in the July MPR.
In Canada, the economy grew by 2.1% in the second quarter, led by government spending and business investment. This was slightly stronger than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July. The labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity.
As expected, inflation slowed further to 2.5% in July. The Bank’s preferred measures of core inflation averaged around 2 ½% and the share of components of the consumer price index growing above 3% is roughly at its historical norm. High shelter price inflation is still the biggest contributor to total inflation but is starting to slow. Inflation also remains elevated in some other services.
With continued easing in broad inflationary pressures, Governing Council decided to reduce the policy interest rate by a further 25 basis points. Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up. Governing Council is carefully assessing these opposing forces on inflation. Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook. The Bank remains resolute in its commitment to restoring price stability for Canadians.
