Bank of Canada Slashes Interest Rate by 25 Basis Points for the First Time Since the Beginning of the Pandemic

Bank of Canada has decisively slashed its key rate by 25 basis points, marking the first drop since the onset of the pandemic. Following a series of interest rate hikes initiated in March 2022 in response to higher-than-anticipated inflation figures in the aftermath of pandemic-related economic support and disruptions in global supply chains, this decision holds significant importance.

This move brings the policy rate down to 4.75 percent, a decline from the 5 percent rate that persisted since July of the previous year.

In light of these developments, it is crucial to note that numerous financial institutions and economists are foreseeing a potential trend of descending interest rates kicking off around mid-2024. Projections range from a 0.25 percent reduction to an overall decrease of 1.00 percent by the year’s end.

The Bank of Canada’s forthcoming announcement on June 5th, 2024 is poised to stand as a momentous occasion for assessing the trajectory of interest rates.

Given these shifts, BMO’s Real Financial Progress Index has reported that 72 percent of prospective homebuyers are awaiting interest rate cuts before entering the property market. Consequently, mortgage brokers are currently managing open files, eagerly anticipating potential buyers.

What implications does this have for my mortgage?

If banks lower their prime rate, borrowers with variable-rate mortgages will experience an immediate impact, just like they’ve experienced the consequences of increasing rates. People with a fixed-rate mortgage will not experience any changes in their payments until it’s time to renew their loans. Fixed-mortgage rates are influenced by changes in the bond market, which, although also impacted by Bank of Canada rate decisions, are based on overall investor confidence. The rate cut had already been largely factored into the market.

This change underscores the opportune conditions for property listings and purchases.

The country’s real estate market has seen limited activity since the middle of 2022, with sales consistently falling below the 10-year average. Homeowners have been grappling with the highest borrowing expenses in years, while potential buyers have been hesitant to make purchases due to uncertainty about the trajectory of interest rates.

A Bank of Canada interest rate cut could boost Canada’s sluggish housing market as potential buyers gain confidence with declining borrowing costs.

CTV News: Bank of Canada cuts key rate for first time in more than 4 years

CTV News: What the Bank of Canada rate cut means for mortgages, consumer loans, and investments

The Globe and Mail: Potential Bank of Canada rate cut would jolt slow housing market, experts say

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