Canada Housing Market

The Bank of Canada has reduced its benchmark interest rate for the third time in a row, bringing the rate down to 4.25%. This decision, announced on September 4, 2024, reflects the central bank’s response to cooling inflation and growing concerns about economic growth.

The widely anticipated quarter-percentage-point cut follows a series of interest rate reductions that began in June 2024, totaling a 75 basis point decrease. This drop in the key policy rate impacts borrowing costs across Canada, influencing rates on mortgages and loans for many Canadians.

Cooling Inflation Drives Rate Cuts

Canada’s inflation rate has been steadily declining throughout 2024, with the latest figure at 2.5% in July. Bank of Canada Governor Tiff Macklem stated that if inflation continues to align with forecasts, further interest rate cuts could be expected in the coming months.

“We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time,” Macklem said in his statement.

Shift in Economic Concerns

Economists have observed a change in the Bank of Canada’s approach in recent months. While inflation remains a central concern, the bank is now placing greater emphasis on the health of the labor market and overall economic growth. Macklem reiterated that the bank is equally concerned about inflation falling below its 2% target, as it could signal a weakening economy.

CIBC’s chief economist, Avery Shenfeld, predicts two additional 25-basis-point cuts by the end of 2024, potentially lowering the rate to 2.5% by next year. He also noted that if inflation or employment data shows further weakness, the central bank might take more aggressive action to stabilize the economy.

Looking Ahead

The Bank of Canada will continue to monitor inflation and economic conditions, with Macklem noting that unexpected shifts in price pressures could still arise later in the year. Further decisions on interest rates will be guided by incoming data and its impact on the country’s inflation outlook.

As the Bank of Canada navigates these uncertain economic waters, Canadians can expect more updates on the evolving interest rate landscape in the coming months.

Source: (1) Bank of Canada cuts key interest rate to 4.25% – National | Globalnews.ca