Making sense of the Bank of Canada interest rate decision on July 24, 2024

What is the Bank of Canada’s interest rate?

This latest decrease brings the central bank’s rate—which sets the benchmark for Canada’s prime rate and variable-rate borrowing products—to 4.5%.

Combined with last month’s decrease, the benchmark cost of borrowing in Canada is now down 0.5% and is at its lowest since May 2023.

What does the rate cut mean? Will the interest rate cuts continue?

In the immediate aftermath of today’s rate cut, Canada’s prime rate will decrease from 6.95% to 6.7%, with consumer lenders passing that discount onto their prime-based products, including variable mortgage rates and home equity lines of credit (HELOCs).

While the outcome of today’s BoC announcement was expected—markets had priced in an 80% chance of a cut—the language in the central bank’s news release was surprisingly cheerful. The central bank usually keeps its cards close to its chest in terms of future cuts, but it wasn’t afraid to come across more dovish today, pointing to the progress made thus far on inflation.

It noted its preferred Consumer Price Index (CPI) “core measures” (called the CPI trim and median) have both trended under 3% in the last few months. The BoC also suggested that inflation will settle around 2%—the target the central bank wants to see—by 2025.

That translates to more cuts to come. The question now, though, is whether another quarter-point cut will come in September and/or December. And, of course, just how many more cuts will come in 2025. 

Currently, analysts believe the BoC’s cutting cycle will bottom out at 3%, which would require another six quarter-point cuts. 

Of course, the BoC maintains that future cuts will depend heavily on inflation, stating, “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.” That means the markets will be watching upcoming CPI reports like a hawk. 

What does the BoC rate announcement mean to you?

What does it mean for you, your home, your finances and more? Read on. 

• Do you have a variable rate mortgage?
• Do you have a fixed rate mortgage?
• The latest mortgage rates
• Are you shopping for a mortgage or a home?
• Are you an investor?
• Wondering about your savings?

…if you’re a mortgage borrower

Renewing or borrowing, this is good news for Canadian home owners.

The impact on variable-rate mortgages

If you’ve stuck it out this far with a variable mortgage rate, you’re being rewarded today. As a result of today’s rate cut, your mortgage rate and payment will lower in kind immediately, if you’re in an adjustable-rate mortgage. If you’ve got a variable mortgage rate with a fixed payment schedule, more of your payment will now go toward your principal mortgage balance, rather than servicing interest.

Canadians shopping for a mortgage or renewing may be wondering if it now makes sense to jump on the variable-rate train. The answer to that is, well, it depends. Variable mortgage rates are best suited for those with a high risk tolerance, or financial bandwidth to absorb any unexpected rate changes. That said, if you’re feeling optimistic that rates are headed lower quickly, now could be the right time to go variable.

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The impact on fixed-rate mortgages

While fixed mortgage rates aren’t directly impacted by the BoC’s rate changes, they, too, are poised to lower further. In fact, lenders have been steadily decreasing their fixed-rate options as bond yields have trended lower in the weeks leading up to today’s announcement. 

Yields have ticked lower in the aftermath of the rate cut, with the five-year Government of Canada bond hovering in the lower 3.3% range. If this continues, those currently fixed-rate shopping or coming up to renew their mortgage (half of all borrowers will be renewing by 2025) can expect to see some lower-priced options to choose from.

Check out the table below to see the current status of mortgage rates in Canada. To change the mortgage from fixed to variable or another option, select the second button where it says “mortgage type.”

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…if you’re shopping for a home/mortgage

After essentially skipping the busy spring real estate season, home buyers have yet to make their grand return to the Canadian housing market—so far. The June rate cut, while cheered by the market, did little to actually improve affordability for would-be buyers. They still face some of the highest borrowing costs in two decades. While the Canadian Real Estate Association reports there was a small bump in sales between May and June, it wasn’t the great bounce-back real estate boards are awaiting. (Read: How much income do I need to qualify for a mortgage in Canada?)

While today’s rate cut will help ease borrowing costs a bit further, what’ll really move the dial is whether it causes a psychological shift among buyers. As we’ve seen in past rate cut cycles, the “fear of missing out” can lead to a boom in demand, and drive prices higher. We’ll need to wait for the next real estate board data reports to see whether buyers are returning now or are waiting for further cuts.

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…if you’re an investor

While rate cuts usually give stock markets a boost, today’s rate cut was already largely baked in. The TSX Composite lagged this morning due to losses on Wall Street in the industrial sector and hasn’t quite perked back up. As of publish time, the index is down 0.45%, at 22,711.92.

In general, though, lower borrowing costs are good news for companies, trade markets and currencies—and the investors who trade in them. The U.S. Federal Reserve is preparing to cut its own rate as early as September due to improved CPI in the States. And that has bolstered markets and will do so further once that cut is realized.

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… for your savings

In every rate announcement, there are winners and losers. And today, Canadian savers will see some of their earning power fade. After seeing record rates of return, upward of 5%, during the BoC’s rate hiking cycle, the party is ending for those with passive investments, like high interest savings accounts (HISAs). Many will be wanting to secure guaranteed income certificates (GICs) with rates near 5%. 

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Read more about the Bank of Canada:

• How the Bank of Canada’s benchmark rate impacts your finances
• What to expect for GICs for this year
• What would a central bank digital currency mean for Canada? We ask 5 experts
• Mortgage renewal calculator

About Penelope Graham

As director of content at Ratehub.ca, Penelope has over a decade of experience covering real estate, mortgage and personal finance. Her commentary is featured on BNN Bloomberg, CBC and The Globe and Mail.

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