Bank of Canada Cuts Interest Rate to 4.75% Amid Economic Changes
The Bank of Canada has just announced a much-anticipated rate cut, lowering its benchmark interest rate by 25 basis points, bringing it to 4.75%! This is the Bank’s first rate cut since March 2020, and it signals some exciting changes ahead for the real estate market. What does this mean for you?
1. Lower Mortgage Rates: With the benchmark interest rate cut, mortgage rates are likely to follow suit. This means lower monthly payments for homeowners and more affordable options for potential buyers.
2. Increased Buying Power: Lower interest rates can increase your purchasing power, allowing you to afford a more expensive home or get better terms on your mortgage.
3. Boost to the Housing Market: This rate cut could invigorate the housing market, leading to more transactions and potentially stabilizing or increasing home prices.
4. Refinancing Opportunities: If you already own a home, now might be a great time to consider refinancing your mortgage to take advantage of the lower rates and save on interest payments.
Globally, the economy grew by around 3% in the first quarter of 2024, which matches the Bank’s April projections. In the United States, economic growth fell short of expectations due to weak exports and inventory issues, even though domestic demand remained strong. Meanwhile, the euro area experienced increased economic activity, and China saw growth driven by strong exports and industrial production, though domestic demand was still weak. Inflation rates are falling in most advanced economies, but progress is uneven. Oil prices and financial conditions have remained stable since April.
Canada's economy began growing again in the first quarter of 2024 after stagnating in late 2023. GDP growth reached 1.7%, slightly less than expected, primarily due to lower inventory investment. Consumer spending grew by 3%, and business investment and housing activity increased. The labour market continues to add jobs, but employment growth is slower than the increase in the working-age population. Wage pressures exist but are gradually easing, suggesting the economy has excess capacity.
In April, CPI inflation fell further to 2.7%. Core inflation measures also declined, indicating a continued downward trend. Price increases across various CPI components are near historical averages, though shelter price inflation remains high.
With clear signs that underlying inflation is decreasing, the Bank’s Governing Council decided to lower the policy interest rate by 25 basis points. They are more confident that inflation will continue to approach the 2% target. However, the Bank remains cautious, closely monitoring core inflation, the balance between supply and demand, inflation expectations, wage growth, and corporate pricing behaviours.
The Bank of Canada is dedicated to maintaining price stability for Canadians, ensuring economic growth while controlling inflationary pressures.
Contact us and our TimSold Mortgage Team to see how we can help you navigate the market!
