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For the first time in two years, the Bank of Canada\u2019s overnight lending rate has hit under 4%.<\/p>\n
In its scheduled October 2024 announcement, the central bank lowered the target for the overnight lending rate by 50 basis points to reach 3.75%. This marks the fourth consecutive cut to rates in 2024, and the largest decrease since the onset of the pandemic in March 2020.<\/p>\n
In September, Canada\u2019s Consumer Price Index recorded the smallest yearly increase since February 2021, rising 1.6% year over year, hitting under the Bank\u2019s 2% inflation target for the second consecutive month. This was a key factor in the Bank\u2019s decision to lower the lending rate by a larger amount in October.<\/p>\n
\u201cIn the past few months, inflation has come down significantly from 2.7% in June to 1.6% in September. Recent indicators suggest it will be around 2% in October. Price pressures are no longer broad-based, and both our measures of core inflation are now under 2.5%. Our surveys also find that business and consumer expectations of inflation have shifted down and are nearing normal. All this suggests we are back to low inflation. This is good news for Canadians,\u201d said Tiff Macklem, Governor of the Bank of Canada, in a press conference with reporters following the announcement.<\/p>\n
\u201cIf the economy evolves broadly in line with this forecast, we anticipate cutting our policy rate further to support demand and keep inflation on target. The timing and pace of further interest rate cuts will depend on incoming information and our assessment of its implications for the inflation outlook. We will take our monetary policy decisions one at a time,\u201d he added.<\/p>\n
Another cut to the overnight lending rate may be enough to stimulate activity in stagnant housing markets across Canada come spring, especially among buyers who have been sidelined by the higher cost of borrowing over the past two years.<\/p>\n
In its Q3 2024 Home Price Update & Market Forecast, Royal LePage predicted that the aggregate price of a home in Canada will increase 5.5% in the fourth quarter of 2024, compared to the same quarter last year. As lower interest rates boost consumer confidence and borrowing power, home prices are expected to increase as more buyers re-enter the market. Rising demand in the late months of 2024 and into the new year will likely put Canada\u2019s housing market on track for an early spring market.<\/p>\n
\u201cActivity in Canada\u2019s housing market has been sluggish in many regions due to higher borrowing costs, but today\u2019s more aggressive cut to lending rates could cause the tide to turn quickly. For those with variable rate mortgages \u2013 who will benefit from the rate drop immediately \u2013 or those with fast-approaching loan renewals, today\u2019s announcement is welcome news indeed,\u201d said Phil Soper, president and CEO of Royal LePage. \u201cWith every cut to the overnight lending rate, more homebuyers are expected to come off of the sidelines. In turn, rising demand will cause home prices to increase more rapidly, eliminating the advantages of lower borrowing costs. We expect that an early spring market is on the cards \u2013 a pull-ahead trend we\u2019ve seen in previous market turnarounds.\u201d<\/p>\n