As I’m sure you’ve heard by now, the Bank of Canada has lowered the Prime lending rate by another 0.25% last Wednesday, marking the second consecutive decrease since it’s June 5th announcement. Most lender’s Prime rates are now sitting at 6.7%, down from 7.2% since June.
The next BoC announcement takes place on September 4th and most economists are predicting a third consecutive cut. The narrative is that there isn’t a lot of time between then and now for any data to show why a third cut isn’t warranted on Sept 4th. After that, the remaining announcements on 2024 are scheduled for October 23rd and December 11th. The general consensus is that we should see Prime come down by at least another 0.50% this year, which will mark a full 1%.
Finally, inflation in Canada appears to be stabilizing and the Bank of Canada is aware that mortgage interest payments are keeping it inflated above the 2% target. They have realized inflation isn’t a good enough reason to keep rates high. Unemployment is increasing, GDP and retail spending both continue to soften. Also, the cuts so far have not ignited the housing market – these things all bode well for more imminent cuts.
This week, we will all be watching for the US Federal Reserve’s (their counterpart to our Bank of Canada) announcement on Wednesday July 31st – will they begin cuts this time or will they wait until September 18th? Canada is heavily influenced by the US and the start to their interest rate cuts are imminent.
The only anomaly for Canada’s path to keep cutting in 2024, would be if the US doesn’t cut by September, then the spread between the two countries becomes quite wide, which would then put pressure on the Canadian Dollar. As long as the Fed starts moving, that removes any remaining uncertainty for the Bank of Canada’s remaining 2024 decisions.
For Variable Rate mortgage holders with adjustable payment mortgages, our second regularly scheduled payment will be lowered by another ~ $15/month for every $100K owed – and this happens in the month following the rate decrease announcement.
Bond Yields, which affect fixed rates are looking favourable so with any luck, we will be out of the peaks and valleys very soon, and we will see fixed rates start to stabilize and trend downward.
For a consultation about your options or if anyone you know could benefit from a chat with me, remember I’m always here and happy to help.