What is the Bank of Canada interest rate?
The latest decline brings the central bank's rate—which sets the benchmark for Canada's prime and variable-rate mortgage products—to 4.5%.
Combined with last month's decline, borrowing costs in Canada are now down 0.5% and the lowest since May 2023.
What does a reduction in rate mean? Will interest rate cuts continue?
Immediately after today's rate cut, Canada's prime rate will drop from 6.95% to 6.7%, with consumer lenders passing that discount on to their most heavily leveraged products, including home equity loans and home equity lines of credit (HELOCs).
While the outcome of today's BoC announcement was expected—markets were pricing in an 80% chance of a rate cut—the language released from the central bank was surprisingly upbeat. The central bank usually keeps its cards close to its chest regarding future tapering, but it was not afraid to go with the extremes today, pointing to the progress that has been made so far on deflation.
It noted the popular “core measures” of the Consumer Price Index (CPI) (called the CPI trim and median) have both trended below 3% over the past several months. The BoC also suggested that inflation will fall to around 2% – the target the central bank wants to see – by 2025.
That translates into more cuts to come. The question now is whether the next quarter cut will come in September and/or December. And, of course, how many more cuts will come in 2025.
Currently, analysts believe that the BoC's cut cycle will decrease by 3%, which will require a reduction of six basis points.
Of course, the BoC insists that future cuts will depend largely on inflation, saying, “Monetary policy decisions will be guided by incoming information and our assessment of their impact on the inflation outlook.” That means the markets will be watching the upcoming CPI reports like a hawk.
What does the BoC rate announcement mean for you?
…if you are a mortgage borrower
Renovating or borrowing, this is good news for Canadian homeowners.
Impact on variable rate mortgages
If you've caught us this far with a variable rate mortgage, you're rewarded today. As a result of today's rate cuts, your mortgage rate and payment will drop significantly faster, if you are in adjustable rate debt. If you have an adjustable rate mortgage with a fixed payment schedule, more of your payment will now go toward your principal mortgage balance, rather than paying interest.
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