As your local Kamloops Mortgage Broker, I feel it’s essential for mortgage and variable debt holders to understand the Bank of Canada’s(Bank) decision to drop rates for the second consecutive time and what could impact further rate drops.

The Bank’s decision to cut interest rates for a second consecutive time on Wednesday (July 24) has been greeted with a sigh of relief from many homeowners and prospective buyers alike. The central bank’s decision means its benchmark rate has fallen by 50 basis points since early June, bringing it to 4.5%.

The factors coming into the Bank’s decision:

The Consumer Price Index(CPI) is trending down. This is exactly what the Bank was working towards. The forecasted CPI is 2.4% by the end of 2024. The Bank said inflation will settle “sustainably” at 2% in the second half of 2025.

Our Gross Domestic Product(GDP) is low. GDP is one of the most widely used indicators of economic performance. Gross Domestic Product measures a national economy’s total output in a given period and is seasonally adjusted to eliminate quarterly variations based on climate and holidays. Canada is experiencing an increase in excess supply, and household spending is weak.

The labour market has shown signs of slack.

Shelter and services inflation are two concerns for the Bank. The June inflation report from Statistics Canada found shelter costs grew at an annualized rate of 6.2%, down from 6.4% in May. Two key shelter components, rent prices and mortgage interest costs, continue to see elevated annual growth rates of 8.8% and 22.3%, respectively.

Forecast of future rate cuts:

Macklem states, “Opposing forces—a weak economy pulling inflation down, and shelter prices keeping it up—mean a decline in inflation will most likely be gradual, with possible setbacks along the way.”

Macklem keeps the door open to further interest rate cuts should inflation continue to come down but repeated several times throughout the recent announcement that “the Bank is not on a predetermined path and would be taking things one meeting at a time.”

The decision for a further cut will be based on the economic response to the last two cuts. 

The central bank’s next interest rate decision is scheduled for Sept. 4, 2024.

Do you have questions about your upcoming renewal? Talk to your local Kamloops Mortgage Broker today!