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 announced an additional decrease to its overnight lending rate today, dropping it from 4.75 percent to 4.50 percent.
What Information did the Bank Share about the Economy?
Canadian Economy
- Heightened population growth of around 3 percent has further increased excess supply in the Canadian economy. This excess supply is expected to be absorbed in 2025 and 2026 by the strengthening economy.
- The bank noted a decrease in household spending, including consumer purchases and housing. However, spending is expected to recover in the latter half of 2024 and into 2025 as the costs of borrowing decrease.
- The unemployment rate is currently sitting at 6.4 percent, with employment opportunities growing more slowly than the influx of workers in the labour force.
- Wage growth remains high but is showing signs of easing in the coming months.
- GDP is projected to grow by 1.2 percent through the rest of 2024, 2.1 percent in 2025, and 2.4 percent in 2026.
- CPI inflation decreased to 2.7 percent in June of this year, with measures of core inflation showing sustained decreases in recent months.
- Shelter price inflation is currently the largest driver of total inflation, with rent and mortgage interest costs remaining elevated.
- Core inflation is expected to reach the 2 percent target in 2025.
- The Canadian dollar has remained stable, with oil prices largely in line with projections in April’s Monetary Policy Report (MPR).
Global Economy
- Inflation in most advanced economies is expected to continue easing gradually.
- The US economy is slowing, largely due to softening growth in consumption.
- Bond yields have also decreased, contributing to easing financial conditions on a global scale.
How does this Impact Me?
- Payments will decrease for Canadians with variable-rate mortgages, lines of credit, or other loans linked to the prime rate as a result of today’s announcement.
- Sustained decreases in bond yields often signal subsequent decreases in 5-year fixed mortgage rates.
Will there be any Interest Rate Changes in the Near Future?
The Bank of Canada’s next rate announcement will take place on September 4, 2024, with many economists predicting an additional decrease by the end of 2024. According to Bank of Canada Governor Tiff Macklem, “if inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate. The timing will depend on how we see these opposing forces playing out.”
