On October 23, 2024, the Bank of Canada lowered its interest rate to 3.75%. This decision was made to boost economic growth as inflation moves closer to the Bank’s 2% target. Here’s how it could impact Canadians:

Economic Outlook

• Global Growth: The world economy is expected to grow at around 3%, with the U.S. performing well while growth in China remains slow. Europe’s economy should improve next year.

• Canadian Growth: The Canadian economy is expected to grow steadily, helped by strong consumer spending, housing demand, and rising business investment. The Trans Mountain Expansion project has boosted exports, and the labour market, while soft, continues to expand as population growth creates new opportunities.

How It Affects You

• Mortgages and Loans: Lower interest rates mean it could become cheaper to borrow money. If you have a variable-rate mortgage, your payments may go down. For fixed-rate mortgages, you may see better rates when renewing.

• Consumer Spending: With rates lower, people may start spending more, which could help boost the economy.

• Inflation: The inflation rate has dropped to 1.6%, helping ease the cost of goods like gas and other everyday expenses. Housing costs, while still high, are beginning to come down.

The Road Ahead

The Bank of Canada plans to carefully monitor the economy and adjust rates as necessary. If the economy continues to improve as expected, further rate cuts could follow to support growth.

Bank of Canada Cuts Interest Rates: What You Need to Know

On October 23, 2024, the Bank of Canada reduced its interest rate by 50 basis points to 3.75%, with the aim of supporting economic growth as inflation settles near the Bank's target range of 1% to 3%. This decision has several effects on the economy and personal finances across Canada. Let’s break down what this means for you and the broader economy.

Why Was the Rate Cut Made?

The Bank of Canada lowered interest rates due to easing inflation and slower-than-expected growth in some key sectors of the economy. While inflation has come down from its peak in recent months, it’s now closer to the Bank’s target of 2%. Additionally, global factors—like slower economic growth in China and Europe—along with domestic conditions, influenced the decision. With inflation more under control, the Bank’s focus is now on boosting economic growth.

What Is Happening Globally?

The global economy is expected to grow by about 3% over the next two years. The United States is growing faster than anticipated, but China continues to struggle, and Europe is expected to recover only modestly next year. Falling global oil prices, down about $10 since July, have helped ease inflationary pressures worldwide.

The Canadian Economic Picture

• Economic Growth: The Canadian economy grew by 2% in the first half of 2024, and it is forecasted to grow by 1.75% in the second half of the year. Moving forward, the Bank expects growth to gradually strengthen, with GDP growth projected at 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026.

• Consumer Spending: While spending remains strong, it has started to slow on a per-person basis. The rate cut is intended to encourage more spending by making borrowing cheaper.

• Labour Market: The unemployment rate was at 6.5% in September 2024. The growing population has expanded the labour force, but hiring has been modest, affecting young people and newcomers the most. Wage growth remains high relative to productivity, adding to inflation concerns.

• Housing: Residential investment is expected to rise as lower interest rates increase housing demand. As sales pick up, spending on renovations and home improvements should follow suit.

Inflation: Is It Under Control?

Inflation in Canada has dropped significantly, from 2.7% in June to 1.6% in September. While shelter costs remain high, they are starting to ease. Falling gasoline prices, thanks to lower global oil prices, have also helped bring inflation down. The Bank’s key measures of core inflation are now below 2.5%, which suggests that inflationary pressures are less widespread than before.

What Does This Mean for Canadians?

For Canadians, lower interest rates could mean cheaper borrowing costs. Here are the key areas where you might feel the impact:

• Mortgages: If you have a variable-rate mortgage, your payments could go down as a result of the rate cut. For fixed-rate mortgages, you may find lower rates when it’s time to renew.

• Loans and Credit: Borrowing money for big purchases, such as cars or home renovations, might become less expensive, making it easier for people to finance these purchases.

• Savings: On the flip side, lower interest rates might reduce returns on savings accounts or GICs. However, with inflation under control, the purchasing power of savings is not being eroded as quickly as before.

Business Impacts

Businesses, especially those in housing, construction, and consumer goods, could see an uptick in demand as borrowing becomes more affordable. Lower interest rates make it easier for businesses to invest in growth, expand their operations, or hire more workers. Additionally, strong demand from the U.S. should help keep Canadian exports healthy, further boosting economic activity.

What’s Next?

The Bank of Canada has left the door open for further rate cuts, depending on how the economy evolves. If inflation remains stable and economic growth meets expectations, we could see the interest rate lowered again in the future. However, the Bank will take a cautious approach, making decisions based on the latest economic data at each meeting.

The key takeaway is that the Bank is committed to keeping inflation stable while helping the economy grow. Canadians should see some relief from rising costs, and businesses may benefit from cheaper borrowing in the months ahead.