What is the Bank of Canada rate of interest?
With this latest cut, the central bank’s key rate of interest, which sets the benchmark for Canada’s policy rates and variable rate loan products, is now at 4.5 percent.
Combined with last month’s decline, borrowing costs in Canada at the moment are down 0.5%, at their lowest level since May 2023.
What does the rate of interest cut mean? Will the rate of interest cuts proceed?
Immediately following today’s rate cut, Canada’s prime rate will drop from 6.95% to six.7%. Consumer lenders will pass this discount on to their prime rate-based products, including variable rate mortgages and residential equity lines of credit (HELOCs).
While the final result of today’s BoC announcement was expected – markets had priced in an 80 percent likelihood of a rate cut – the language within the central bank’s press release was surprisingly upbeat. The central bank is normally tight-lipped about future rate cuts, but today it was not afraid to look more dovish, pointing to progress on inflation to this point.
It identified that its preferred “core” measures of the patron price index (CPI) (called the CPI trim and median) have each trended below 3% in recent months. The BoC also suggested that inflation will settle at around 2% by 2025 – the goal the central bank wants to attain.
This signifies that there are more cuts to come back. The query now is whether or not there might be one other quarter-percentage point cut in September and/or December. And in fact, what number of more cuts there might be in 2025.
Analysts currently expect the BoC’s rate-cutting cycle to bottom out at 3%, which might require six more cuts of 1 / 4 of a percentage point each.
Of course, the BoC insists that future rate cuts will depend heavily on inflation, stating: “Monetary policy decisions will be guided by incoming information and our assessment of their impact on the inflation outlook.” This signifies that markets might be watching the upcoming consumer price index reports with a keen eye.
What does the BoC rate of interest announcement mean for you?
…for those who take out a mortgage loan
Whether extending or taking out a loan, this is nice news for Canadian homeowners.
The impact on variable rate mortgages
If you have held out this far with a variable rate mortgage, you will be rewarded today. As a results of today’s rate cut, your mortgage rate and mortgage payment will immediately drop if you’ve gotten a variable rate mortgage. If you’ve gotten a variable rate mortgage with a set payment plan, a bigger portion of your payment will now go toward paying down your mortgage balance relatively than servicing interest.
