Bank of Canada Lowers Rates: Economic Growth, Inflation Trends, and What’s Next

The Bank of Canada has lowered its target for the overnight rate to 3.75%, with the Bank Rate at 4% and continues its balance sheet normalization policy. The global economy is projected to grow by about 3% over the next two years, with stronger-than-expected growth in the U.S., a subdued outlook for China, and moderate recovery in the euro area. Inflation in advanced economies has eased, nearing central bank targets, while global oil prices have dropped by about $10 since July.

In Canada, the economy grew by around 2% in the first half of the year, with expected growth of 1.75% in the second half. Although consumption has increased, it is declining on a per-person basis.

Inflation has decreased significantly, with CPI falling from 2.7% in June to 1.6% in September, though shelter costs remain high. The Bank expects inflation to stay near its 2% target, and further rate cuts may follow if economic conditions align with the forecast. The Bank remains committed to maintaining price stability and controlling inflation around 2%.

After the Bank of Canada’s rate cut, lenders usually take a few days to adjust their prime rates. The prime rate is expected to decrease to around 5.95% at most lenders, while TD Bank’s prime rate will likely settle at around 6.10%.

Variable-rate mortgage holders:

• Estimated savings of $29.96 per $100,000 mortgage (25-year amortization).
• Fixed payments: More payment goes toward the principal.
• Adjustable payments: Monthly payments decrease slightly.

Fixed-rate mortgage holders:

• No change in payments.

Other loans (personal loans, lines of credit):

• Reduced interest charges.

Looking ahead, the Bank of Canada’s next rate decision is on December 11, 2024, and another rate cut is anticipated, which could provide further relief for borrowers. However, this is not guaranteed.

Source: Bank of Canada