The Bank of Canada (BoC) cut its key interest rate by 25 basis points to 4.25 per cent on Wednesday, marking its third consecutive cut since June.
The central bank says the economy grew by 2.1 per cent in the second quarter of this year, due to government spending and business investment. BoC Governor Tiff Macklem says it was slightly higher than what they forecasted in July.
“Our decision reflects two main considerations. First, headline and core inflation have continued to ease as expected. And second, as inflation gets closer to the target, we want to see economic growth pick up to absorb the slack in the economy, so inflation returns sustainably to the two per cent target,” Macklem said in a press conference.
He goes on to say that inflation continues to reflect a push and pull in forces and overall, weakness within the economy is pulling inflation down, but price pressures and shelter and other services are holding inflation up.
“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy interest rate,” Macklem said.
The bank’s July projection is showing more growth in the second half of this year. Macklem says the bank is determined to get inflation down to the two-per cent target because the economy also functions better at this rate.
Back in July, the bank cut its key interest rate to 4.5 per cent, a reduction of 25 basis points from its previous cut of 4.75 per cent in June.
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Online, many Canadians say the interest rate cut is simply not enough.
“Should have dropped at least one percent minimum,” one X user said.
“Should have been 50 basis points,” another user said.
“This makes zero difference,” another user commented.
WHAT DOES THIS MEAN FOR CANADA’S HOUSING MARKET?
According to RATESDOTCA Mortgage and Real Estate Expert Victor Tran, residents are not likely to see the effects of the lowered rate in the housing market any time soon.
“Housing market activity in major urban centers like Toronto and Vancouver has not picked up nearly as much as we had expected in recent months. The reality is the math just doesn’t make sense for many people who want to purchase a home,” Tran said in a statement on Wednesday.
“Mortgage rates have not come down nearly fast enough to stimulate much activity in the housing market. It’s just not affordable for people. It will take a significant decrease in mortgage rates before we see a return of housing market activity,” he continued.
Tran says for every 25-basis point decrease, a homeowner with a variable rate mortgage can expect to pay approximately $15 less per $100K of mortgage in monthly payments.
On the other hand, President and CEO of Royal LePage Phil Soper believes first-time homebuyers have a choice to buy now or wait until further rate cuts.
“…Home values have largely plateaued this year, and improved affordability due to lower borrowing costs has benefited many. However, once the backlog of sidelined buyers is released into the market, pent-up demand will drive prices higher. This fall, we can expect more cautious Canadians to take the plunge, while those willing to take on the risk might hold out for further rate cuts,” he said in a statement on Wednesday.
The next scheduled date for an interest rate decision is Oct. 23.
