Variable-rate mortgage holders are celebrating, having awaited this day since the first rate hike 27 months ago. The overnight target rate was cut to 4.75%, lowering the prime lending rate to 6.95%. This rate cut is likely just the beginning. The Bank of Canada expects this to be the start of a series of rate cuts.
The Bank of Canada, under the leadership of Chief Tiff Macklem, took a proactive stance. They couldn’t ignore the glaring warning signs or Canadian’s call for rate relief. This decisive action to cut rates was a strategic move to avoid a looming economic crisis, instilling confidence in the financial system.
“With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points. Recent data has increased our confidence that inflation will continue to move towards the 2% target”, the rate announcement explained.
It’s important to note that the Bank of Canada’s decision to increase the key rate does not directly affect fixed rates. Instead, fixed rates are influenced by the 5-year government bond yield. Lenders typically set their mortgage rates 1-2% higher than the bond yield, a key factor for clients to consider when understanding the dynamics of mortgage rates.
The next scheduled date for announcing the overnight rate target is July 24, 2024.