The experts who predicted another “jumbo-size” half-point cut in the Bank of Canada interest rate were right. The question that follows is: How will this affect the economy in general and real estate in particular? How quickly will the “other” banks — the ones that issue mortgages — respond and how much will their response reflect the interest-rate drop?
In reducing its “overnight policy rate” from 3.75 to 3.25 per cent, the Bank reasoned that: (a) the “global economy is evolving largely as expected” (b) the U.S. economy “continues to show broad-based strength, with robust consumption and a solid labour market” (c) the euro’s “recent indicators point to weaker growth (d) global financial conditions have eased and the Canadian dollar has depreciated in the face of broad-based strength in the US dollar.
The Bank expects that inflation will average close to its 2 per cent target over the next couple of years.
Speculation is that mortgage rates will initially be around 5.25 per cent, that there may not be quick action on the part of lenders, or even a full reflection of the half-point drop, and that while the move is a good one, it will take time to work through the consumer household spending and mortgage rates.
In other words, it’s going to take time to see what the impact of this fifth consecutive rate cut will be. In the meantime, there will be a new administration south of the border and the reality (or not) of proposed tariffs imposed by the U.S. — and their potential impact — will at least become clearer.
The next Bank of Canada interest rate announcement will be January 29. Early projections are for another cut, followed by a more conservative approach into 2025.