Bank of Canada lowers key interest rate again

For the second consecutive time, the Bank of Canada has cut its key interest rate.

The Bank of Canada announced Wednesday (July 24) it reduced its target for the overnight rate to 4.5 per cent with the Bank Rate at 4.75 per cent and the deposit rate at 4.5 per cent.

The reduction is the second consecutive cut after the central bank lowered its policy rate for the first time in June, bringing it down from five per cent to 4.75 per cent.

The rate cut could provide some relief to homeowners by lowering mortgage costs. Real estate experts indicate it could prompt some people to buy a home.

“We expect this will prompt a slight boost in activity in the short-term, followed by more robust buyer demand in the fall,” said Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd.

The decision comes as “broad price pressures continuing to ease and inflation expected to move closer to two per cent,” the Bank of Canada said in a press release.

“Ongoing excess supply is lowering inflationary pressures,” the release states.

The cut comes as the global economy is expected to continue expanding at an annual rate of about three per cent through 2026, the release states.

While inflation is still above central bank targets in most advanced economies, it is forecast to ease gradually. In the United States, the anticipated economic slowdown is materializing, with consumption growth moderating. US inflation looks to have resumed its downward path, the release states.

In Canada, economic growth likely picked up to about 1.5 per cent through the first half of this year.

However, with robust population growth of about three per cent, the economy’s potential output is still growing faster than GDP, which means excess supply has increased.

Household spending, including both consumer purchases and housing, has been weak. There are signs of slack in the labour market. The unemployment rate has risen to 6.4 per cent, with employment continuing to grow more slowly than the labour force and job seekers taking longer to find work.

GDP growth is forecast to increase in the second half of 2024 and through 2025. This reflects stronger exports and a recovery in household spending and business investment as borrowing costs ease. Residential investment is expected to grow robustly.

“With new government limits on admissions of non-permanent residents, population growth should slow in 2025,” the release states.

Home price inflation remains high, driven by rent and mortgage interest costs, and is still the biggest contributor to total inflation. Inflation is also elevated in services that are closely affected by wages, such as restaurants and personal care.

At the same time, price pressures in some important parts of the economy—notably shelter and some other services—are holding inflation up. The Bank of Canada’s governing council is carefully assessing these opposing forces on inflation.

The next scheduled announcement on the overnight rate target is Sept. 4.

The Bank will publish its next full outlook for the economy and inflation, including risks to the projection on Oct. 23.

See the full press release from the Bank of Canada here.