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Bank of Canada has finally reduced Rates!

Bank of Canada reduced the overnight rate by 0.25%, bringing it from 5% to 4.75%. Which for most lenders will bring the Prime rate from 7.20% to 6.95%


Now remember, this directly impacts those with a Variable/Adjustable Rate Mortgage. This does not directly impact Fixed Rates.

For Example: If you have a Home Equity Line of Credit, the rate is typically Prime + .50%. So this would bring your rate from 7.70% to 7.45%. Where if you have a Variable/Adjustable Rate Mortgage, it typically ranges from Prime - .50% to -1.10% bringing your current Rate 6.70% to 6.10% and decreasing it to 6.45% to 5.85%

What is the Bank of Canada Overnight Rate?

The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market.

The Bank of Canada holds this Key Lending rate. They might lower it to encourage borrowing and spending OR they may increase it to curb inflation and debt levels.

Major lenders typically raise their prime rate when there is a hike. Thats the number they use to set interest rates for loans and mortgages.

Unlike a fixed rate where one is locked in to their rate, those in a variable rate will be affected by these changes. Home owners with fixed rate mortgages won't be affected until they have to renew.

Should I lock into a Fixed Rate now?

Historically variable rates have shown to save you more money in the long run.

A few things you should consider before locking into a Fixed rate is:

  • Are you planning to sell your home in the near future? Then we would highly recommend you stay in your variable rate mortgage.

  • Can your budget handle a payment increase if rates go up?

  • Will you be putting extra money down on your mortgage each month? If so, the savings from a variable rate can help you pay down your mortgage faster.

If you are considering locking in, give us a call to discuss first. We have a fun little calculator to help you forecast your savings if you decide to stay with your variable rate.


Whats to come??

Source: First National - one of Canada's largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.

Today, the Bank of Canada reduced its overnight policy interest rate by 0.25% to 4.75%. This welcome and widely expected decision comes on the heels of evidence pointing to a deceleration of the rate of inflation.

We examine the Bank’s rationale for this move by summarizing its observations below, including its all-important outlook comments that are sure to shape market expectations for the remainder of the year. 

Canadian inflation

  • Inflation measured by the Consumer Price Index (CPI) eased further in April to 2.7%

  • The Bank’s preferred measures of core inflation also slowed and three-month indicators suggest continued downward momentum

  • Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average, however, shelter price inflation remains high

Canadian economic performance and housing

  • Economic growth resumed in the first quarter of 2024 after stalling in the second half of last year

  • At 1.7%, first-quarter GDP growth was slower than the Bank previously forecast with weaker inventory investment dampening activity

  • Consumption growth was solid at about 3%, and business investment and housing activity also increased

  • Labour market data show Canadian businesses continue to hire, although employment has been growing at a slower pace than the working-age population

  • Wage pressures remain but look to be moderating gradually

  • Overall, recent data suggest the economy is still operating in excess supply

Global economic performance and bond yields

  • The global economy grew by about 3% in the first quarter of 2024, broadly in line with the Bank’s April Monetary Policy Report projection

  • The U.S. economy expanded more slowly than was expected, as weakness in exports and inventories weighed on activity

  • In the euro area, activity picked up in the first quarter of 2024 while China’s economy was also stronger in the first quarter, buoyed by exports and industrial production, although domestic demand remained weak

  • Inflation in most advanced economies continues to ease, although progress towards price stability is “bumpy” and is proceeding at different speeds across regions

  • Oil prices have averaged close to the Bank’s assumptions, and financial conditions are little changed since April

Summary comments and outlook 

The Bank cited continued evidence that underlying inflation is easing for its decision to change its policy interest rate. More specifically, it said that “monetary policy no longer needs to be as restrictive.”

Also welcome was the Bank’s statement that “recent data” have “increased our confidence that inflation will continue to move towards” its 2% target.

However, it also added this to its outlook: “Nonetheless, risks to the inflation outlook remain. Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

And has it has been doing for some time, it said the Bank “remains resolute in its commitment to restoring price stability for Canadians.”

Stay Tuned

Next Schedule Interest Rate announcements will be July 24th, 2024



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