Bank of Canada Lowers Interest Rates

In a notable move not seen since the pandemic's onset, the Bank of Canada has slashed its overnight rate by 25 basis points, bringing it down to 4.75%. This reduction from the previous 5% rate, held steady since July of last year, marks a significant shift in the Bank’s monetary policy as it continues its balance sheet normalization amid signs of easing inflation.

Economic Snapshot

• Global Economy: Expanded by 3% in the first quarter of 2024, with the US experiencing slower growth due to weak exports and inventories, while the Euro area and China saw stronger activity.
• Canadian Economy: Grew by 1.7% in Q1 2024, below expectations but buoyed by 3% growth in consumption, increased business investment, and a strong housing market.

Inflation Trends

• CPI Inflation: Dropped to 2.7% in April from 2.9% in March.
• Core Inflation: Continues to show a downward trend.
• Shelter Prices: Remain high despite overall price stability.

Since March 2022, the Bank of Canada has been raising its key interest rate in response to higher-than-expected inflation driven by pandemic stimulus and disrupted global supply chains. Now, with sufficient evidence of sustainable easing in underlying inflation, the Bank has made the first rate cut among major central banks, including the Bank of England, the European Central Bank, and the US Federal Reserve.

“We’ve come a long way in our fight against inflation,” said Bank of Canada Governor Tiff Macklem in Ottawa. “And our confidence that inflation will continue to move closer to the 2% target has increased over recent months.”

Employment Trends

April saw a surge in employment with 90,000 new jobs, primarily part-time. While employment growth hasn't matched the increase in the working-age population, the labor market has begun to align better with job vacancies, leading to eased wage pressures. Nevertheless, Governor Macklem emphasized the ongoing risks to the inflation outlook, stating that future rate decisions will be made cautiously.

“If we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made,” Macklem warned. “Further progress in bringing down inflation is likely to be uneven, and risks remain.”

Impact on Brantford and Brant County Housing Market

The interest rate cut is poised to have significant implications for home buyers and sellers in Brantford and Brant County:

• For Home Buyers: Lower interest rates mean reduced mortgage costs, making it more affordable to purchase homes.
• For Home Sellers: Increased affordability for buyers can boost demand, potentially driving up property values and accelerating sales.

The Bank of Canada’s rate reduction aims to foster economic growth and ensure price stability, offering a favorable outlook for the housing market in Brantford and Brant County.

History of Canadian Interest Rates

Historically in Ontario, interest rates have played a crucial role in shaping the housing market for both home buyers and sellers. When interest rates are low, borrowing costs decrease, making mortgages more affordable. This typically leads to increased demand for homes, driving up property prices and creating a seller's market.

Conversely, when interest rates rise, the cost of borrowing increases, making mortgages more expensive. This often results in reduced demand for housing, leading to slower price growth or even price declines, creating a buyer's market.

These cyclical changes influenced by interest rate adjustments have been a defining factor in the dynamics of Ontario's real estate market, impacting affordability, market activity, and overall economic conditions in the province.

 

Chart from Bank of Canada

Looking Ahead

The next announcement on the overnight rate target is set for July 24, 2024, when the Bank will also unveil its updated economic and inflation outlook. Stay tuned as the Bank of Canada continues to navigate economic challenges, striving to promote stability and growth.

Information from Bank of Canada and CTV News