The Bank of Canada has reduced its key overnight rate by 50 basis points to 3.25 per cent, marking a fifth straight rate decrease since June.
On Wednesday, the central bank announced the policy rate change, along with dropping the bank rate to 3.75 per cent and the deposit rate to 3.25 per cent.
The bank says it’s “continuing its policy of balance sheet normalization” to support growth and keep inflation close to the middle of the one to three-per cent target range.
We have lowered our policy interest rate to 3.25%.
— Bank of Canada (@bankofcanada) December 11, 2024
Learn more: https://t.co/MuMPaqbieR#economy #cdnecon pic.twitter.com/5SpWz4Girg
It added that with inflation around its target and the economy in excess supply, the bank decided to slash the policy rate by another 50 basis points, after the last cut in October.
“To summarize, inflation is back to the two per cent target and lower interest rates are beginning to pass through to stronger spending by households. But the economy remains in excess supply and the growth outlook now appears softer than we projected in October,” Governor Tiff Macklem said in a Wednesday morning press conference.
The bank noted that a number of upcoming policy measures will affect the outlook for near-term growth and inflation across the country.
“Reductions in targeted immigration levels suggest GDP growth next year will be below the Bank’s October forecast. The effects on inflation will likely be more muted, given that lower immigration dampens both demand and supply,” it said in a news release on Wednesday.
Other federal and provincial policies, including the upcoming holiday tax-break, one-time rebates and changes to mortgage rules, will affect demand and inflation, the bank adds.
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U.S. President-elect Donald Trump’s tariff threat has also “increased uncertainty and clouded the economic outlook,” the bank says.
Going forward, Macklem says the bank will be assessing the need for further cuts in the policy rate “one decision at a time.”
“In other words, with the policy rate now substantially lower we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected,” Macklem said.
HOW WILL THIS RATE CUT IMPACT THE HOUSING MARKET?
The decrease in the overnight rate is welcome news for homeowners, especially those with a variable mortgage.
Insurance and financial services platform RATESDOTCA says for every 50-basis point cut, a homeowner with a variable-rate mortgage can expect to pay about $28 less per month per $100,000 of mortgage, based on a 25-year amortization.
However, the housing market overall has yet to see a noticeable uptick in activity since the bank started slashing rates back in June.
“While we have seen a steady uptick in home sales activity over the past month, the housing market is still comparatively slow,” Victor Tran, RATESDOTCA mortgage and real estate expert, said in a statement on Wednesday.
“The predicted rush after the Bank of Canada began lowering rates in June has yet to materialize, and as we head into what is traditionally one of the slowest times of year in the housing market, that is unlikely to change immediately,” he added.
In addition, licensed mortgage broker and LowestRates.ca expert Leah Zlatkin says homebuyers are facing a dilemma right now.
“We’re seeing strong sales and rising home prices, but there’s also a sense of caution in the air with economic uncertainty and affordability concerns. It’s a dynamic market where both opportunity and risk are present. Ultimately, the decision to buy or wait hinges on your individual circumstances and how much risk you’re comfortable with,” Zlatkin said in a statement on Wednesday.
However, Tran predicts that the housing market will pick up “significantly” early next year.
“We’re likely to see an early start to the spring housing season and a market shift from favouring buyers to favouring sellers. When the market changes, it’s likely to change quickly and heat up fast. Buyers planning on purchasing in early 2025 should secure pre-approvals now and prepare to move quickly for desirable properties,” Tran said.
Zlatkin agrees that today’s rate cut will likely intensify the market.
“With home prices already increasing and demand surging, those waiting for a cool down may find themselves priced out. Buyers need to carefully weigh the potential benefits of waiting against the risks of further price escalation and competition,” Zlatkin said.
The Bank of Canada’s next announcement for the overnight rate target is set for Jan. 29, 2025.
