In this blog:
What Does the Bank of Canada do?
Eight times per year, the Bank of Canada (BOC) makes a scheduled announcement about their benchmark lending rate based on data they have assessed about the current state of the Canadian economy. Any change to this rate indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This is because the rate set by the bank will directly affect prime rates offered by banks and other financial lenders. For more information, take a look at our blog post breaking down four of the most frequently asked questions regarding the BOC.
Were there any Changes to the Interest Rate?
The Bank of Canada made another significant decrease to its key interest rate today, marking the final interest rate announcement of 2024. For the second time in a row, the central bank dropped its rate by 0.5 percent, lowering it from 3.75 percent to 3.25 percent. The bank’s balance sheet normalization policy also remains in place.
What Information did the Bank Share about the Economy?
Canadian Economy
The economy grew by approximately one percent in quarter 3 of 2024, slightly below the bank’s October projection.
Growth in the final quarter of the year is also looking weaker than expected.
There has been an increase in housing market activity and consumer spending in recent months, bolstered by the recent reductions in interest rates.
Wage growth remains elevated, with growth in the labour force outpacing vacant positions. The unemployment rate hit 6.8 percent in November.
Several new federal and provincial policies are expected to impact inflation and demand, including:
The temporary GST suspension on qualifying purchases between December 14, 2024 and February 15, 2025. You can find the full list of GST exemptions here.
Reduced targets for immigration, which will reduce supply and demand within the Canadian economy.
The one-time $250 Working Canadians Rebate to eligible individuals in early spring 2025. Learn more about the rebate here.
Recent changes to mortgage rules, including extended amortization and the increased to the price cap for insured mortgages.
Global Economy
The Canadian dollar has eased further against the US dollar, with the US economy supported by strong consumption and a sturdy labour market.
Global financial conditions have continued to soften in recent months.
How does this Impact Me?
- Canadians with variable-rate mortgages, lines of credit, or other loans tied to the prime rate will see an immediate decrease to their payments.
- Reduced borrowing costs for new mortgages, loans, and lines of credit may also follow today’s announcement.
Will there be any Interest Rate Changes in the Near Future?
The first rate announcement of the new year will take place on January 29, 2025. Further rate cuts are expected to take place throughout 2025, with some economists projecting the rate to fall to 2.5 percent by mid-year.
The bank cited ambiguity around economic outlook and the potential tariffs on Canadian exports to the US.
