Real Estate Blog

Bank of Canada Lowers Key Interest Rate to 4.5%

The Bank of Canada has announced a reduction in its overnight rate target to 4.5%, along with the Bank Rate at 4.75% and the deposit rate at 4.5%. This move aligns with the Bank’s ongoing efforts to normalize its balance sheet.

Global Economic Outlook

The global economy is expected to grow at around 3% annually through 2026. While inflation remains above target in many advanced economies, it is expected to ease gradually. The U.S. is experiencing a slowdown in economic growth, with consumer spending moderating and inflation resuming its downward trend. In the euro area, growth is picking up after a weak 2023, and China’s economy is growing modestly, driven by strong exports despite weak domestic demand. Global financial conditions have improved, with lower bond yields, rising equity prices, and robust corporate debt issuance. The Canadian dollar remains stable, and oil prices are consistent with earlier projections.

Canadian Economic Update

In Canada, economic growth has likely risen to about 1.5% in the first half of this year. However, with a robust population growth rate of about 3%, the economy’s potential output is still outpacing GDP, leading to increased excess supply. Household spending, including consumer purchases and housing, has been weak, and there are signs of slack in the labor market. The unemployment rate has risen to 6.4%, with employment growth lagging behind the labor force, and job seekers taking longer to find work. Wage growth shows signs of moderating but remains high.

Future Economic Projections

GDP growth is expected to pick up in the second half of 2024 and continue through 2025, driven by stronger exports and a recovery in household spending and business investment as borrowing costs ease. Residential investment is also expected to grow robustly. New government limits on admissions of non-permanent residents should slow population growth in 2025. The Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026, gradually absorbing excess supply.

Inflation Trends

CPI inflation moderated to 2.7% in June, with broad inflationary pressures easing. Core inflation has been below 3% for several months. Shelter price inflation, driven by rent and mortgage interest costs, remains the biggest contributor to total inflation. Services closely affected by wages, such as restaurants and personal care, also see elevated inflation.

Core inflation is expected to slow to about 2.5% in the second half of 2024 and ease gradually through 2025. CPI inflation is anticipated to dip below core inflation in the second half of this year due to base year effects on gasoline prices but may edge up again before stabilizing around the 2% target next year.

Monetary Policy and Future Decisions

With broad price pressures easing and inflation expected to approach the 2% target, the Bank has decided to reduce the policy interest rate by another 25 basis points. While ongoing excess supply is lowering inflationary pressures, price pressures in key areas like shelter and certain services are keeping inflation elevated. The Bank’s Governing Council is closely monitoring these dynamics and will base future monetary policy decisions on incoming information and its impact on the inflation outlook. The Bank remains committed to restoring price stability for Canadians.

Next Announcement: The Bank will announce its next overnight rate target on September 4, 2024.

If you have any questions about how these rates affect your home selling or buying, contact us for a FREE 15 minute consultation! 905.335.4102 | info@roccasisters.ca