Bank of Canada Rate Decrease
Bank of Canada Rate Decrease
Date Posted: December 11, 2024
The Rate Announcement
In a recent widely expected announcement, the Bank of Canada decreased the overnight rate by 0.50% (50 basis points) to a new overnight rate of 3.25%, following their previous decrease in October 2024.
The Bank's Governing Council decided to decrease the policy rate and continue normalizing the Bank's balance sheet. The global economy is developing as expected, with the U.S. showing strong growth, the euro area slowing down, and China relying on exports and policies to offset weak household spending.
In Canada, economic growth slowed to 1% in the third quarter of 2024, below expectations, due to declines in business investment, inventories, and exports. However, consumer spending and housing activity are improving as lower interest rates encourage household spending. Unemployment rose to 6.8%, and while wage growth is slowing, it remains high compared to productivity.
What Does This Impact?
The Bank of Canada’s target overnight policy rate affects the interest you pay from lenders like banks. The higher the overnight rate, the more interest you will pay. The December 2024 drop from the Bank of Canada means that variable and adjustable mortgage holders will see a decrease in their interest costs and possibly a decrease in their mortgage payments. Fixed rate mortgages are not as directly impacted by the BOC rate announcement, however the bond markets which influence fixed rates have largely already built in the expected 0.50% rate drop.
Getting Back on Track
Policy changes, like reduced immigration targets and temporary tax cuts, are expected to dampen growth and temporarily affect inflation, but the Bank of Canada is focusing on long-term trends. Inflation remains near 2%, and with weaker growth signals, the Bank cut its policy rate by 50 basis points to support the economy and maintain stable inflation within its 1-3% target range.
The next rate announcement will be on January 29th, 2025.
If you have questions about your own mortgage, and the best strategy for you, please contact your broker today.
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