The recent 25 basis point decrease in interest rates by the Bank of Canada was widely anticipated by the market. This move is expected to stimulate the Canadian economy so it can prosper again. This action is noteworthy, as it marks a divergence between the Bank of Canada and the Federal Reserve, which has opted to keep rates unchanged. This makes Canada the first G7 nation to reduce rates, initiating cuts sooner than the Federal Reserve.
Behind the Bank of Canada’s decision, the European Central Bank also lowered its rate by 25 basis points, whereas the Central Bank of England chose to maintain its rates.
The Bank of Canada’s decision to decrease rates is a move in the right direction, providing an essential stimulus amidst an environment of excess supply in the market, improving labour market data, and a trend towards lower inflation, aligning more closely with the 2% target set by the BOC guidelines. For real estate professionals, these rate cuts could mean potentially more competitive mortgage rates for buyers, enhancing market activity.
I project another 25 basis point drop in July and two additional 25 basis point decreases later in 2024, following a pause in September. This pause is important, as it would allow for the market to fully absorb the initial rate cuts. Looking ahead to 2025, the Bank of Canada is expected to lower rates by 100 basis points or more, approaching a 3% neutral rate by the end of 2025.
In contrast, the Federal Reserve in the US is anticipated to begin lowering rates around the fourth quarter of 2024, while the European Central Bank is likely to continue its rate reductions well into 2025. The Bank of England is expected to start decreasing as part of its easing monetary policy this August.
These Bank of Canada rate cuts can provide critical stimulus to the economy. For realtors, this could result in a dynamic period ahead, where lower interest rates could stimulate more buyer interest. Continuing to monitor the situation and understanding these shifts will be important in advising clients.
