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Further moves to lower rates could also be on the way

The Bank of Canada has cut its policy rate by a further 25 basis points in its September decision, marking a third consecutive move to bring rates lower.

The central bank said on Wednesday morning (September 4) that it was trimming rates yet again after back-to-back cuts in June and July, meaning its trendsetting rate now sits at 4.25% – down from a 23-year high of 5% at the beginning of the summer.

The decision is a further indication of the Bank’s confidence that inflation and the overall economy have cooled enough to justify lowering borrowing costs, with Canadians on variable-rate mortgages and those with home equity lines of credit (HELOCs) set to see their rates fall again.

Having hiked rates throughout 2022 and into the middle of 2023 in a bid to curb spiking inflation, the Bank has struck an emollient tone on the rate outlook in each of its last three announcements.

Its latest decision was widely expected by markets – and the September cut is unlikely to be the Bank’s last rate drop.

According to economists recently surveyed by Bloomberg, the central bank is set to lower its policy rate by 25 basis points at each of its next five meetings, meaning it would settle at the 3% mark by the halfway point of 2025.

That would come as welcome news for the mortgage market, particularly with a looming wave of renewals at much higher rates than those taken out during the COVID-19 pandemic set to occur in the coming 24 months.

Inflation remains squarely within the Bank’s target range, while Royal Bank of Canada (RBC) economists Nathan Janzen and Claire Fan highlighted that per-capita output has fallen in seven of the last eight quarters and unemployment has risen noticeably compared with the same time last year.

The Bank will meet on interest rates twice more in 2024, with an October 23 meeting to be followed by its final decision of the year on December 11.

Source: Canadian Mortgage Professional