Bank of Canada reduces key interest rate by 0.50%

This morning, the Bank of Canada announced a decrease in its key interest rate by 0.50%. The prime rate has decreased from 6.45% to 5.95%. As a result, variable-rate mortgage holders will see a decrease of approximately $30.68 per month for every $100,000 of mortgage.

On a global scale, the economy is projected to grow at about 3% over the next two years. The United States is expected to experience stronger economic growth than previously forecasted, driven primarily by robust consumer spending. In contrast, the outlook for China remains subdued, which may have implications for trade and investment opportunities worldwide.

In Canada, GDP growth was approximately 2% in the first half of the year, with an anticipated growth rate of 1.75% for the latter half. Government spending and business investment have played crucial roles in this growth, although early signs suggest that economic activity may have slowed in June and July. The job market continues to show signs of weakness, with an unemployment rate of 6.5% recorded in September.

Inflation trends have also shifted, with the Consumer Price Index (CPI) declining significantly from 2.7% in June to 1.6% in September. This decrease has been driven by easing shelter costs and a notable drop in global oil prices, which has led to lower gasoline prices. While inflation remains high in some sectors, particularly in services, the overall trend indicates a reduction in broad inflationary pressures.

The Bank of Canada expects inflation to stabilize around the 2% target over the projection horizon. In light of these developments, the Bank has decided to reduce the policy rate by 50 basis points, which aims to further support economic growth. The timing and pace of any future rate adjustments will depend on incoming economic data and its impact on the inflation outlook.

The next Bank of Canada announcement will be on December 11, 2024.

If you'd like to learn more about this recent announcement or have any questions, please feel free to reach out to me, and I’d be glad to help!