|
The Bank of Canada has done it again—cutting its policy rate by another 50 basis points on Wednesday.
This brings the total rate reductions in 2024 to 175 basis points (1.75 percentage points), leaving the policy rate at a two-year low of 3.25%.
"The Governing Council has reduced the policy rate substantially since June, and those cuts will be working their way through the economy,” BoC Governor Tiff Macklem said during his post-announcement press conference on Wednesday.
Why another big cut?
The Bank opted for another large rate cut because Canada’s economy hasn’t been performing as well as expected. Growth was weaker in the third quarter, and the trend seems likely to continue into the fourth.
"With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range,” the statement read.
Following Wednesday’s decision, most major banks and lenders lowered their prime lending rates to 5.45%. However, TD Bank stands out as an exception, maintaining its mortgage prime rate at 3.60%.
What does this mean for you?
If you’re wondering how this latest rate cut could affect you, here’s a quick breakdown:
- Variable-rate mortgages: This is great news if you have a variable rate. If your payments are fixed, more of your payment will go toward the principal. If your payments adjust with the prime rate, your monthly payment will drop by roughly $28 per $100,000 of mortgage loan, based on a 25-year amortization.
- Fixed-rate mortgages: No changes here—your payments will stay the same for now.
- Other loans tied to the prime rate: If you have a personal loan or a line of credit, you’ll see lower interest charges soon, saving you a bit more each month.
What’s next for interest rates?
After five straight cuts, the pace of rate reductions is likely to slow. Governor Macklem signalled that future decisions will be made "one decision at a time.”
"In other words, with the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected,” he said.
Most economists predict another 75-125 basis points in cuts during the first half of 2025 before the Bank takes a pause.
"Given the slack in the economy, and the cloud over the trade outlook, we look for some further small rate trims of the 25 bp variety in 2025, bringing the overnight rate down to 2.50% before mid-year,” wrote BMO Chief Economist Douglas Porter.
"…the major wildcard is what unfolds on the tariff front, and how Canada responds; suffice it to say, rates are going lower still if broad U.S. tariffs are imposed on Canada,” he added.
The Bank’s next monetary policy meeting will take place on January 29, 2025.
|