Bank of Canada Lowers Policy Rate by 50 Basis Points to 3.75%

In a significant move to support economic growth, the Bank of Canada has reduced its policy rate by 50 basis points, bringing the overnight rate to 3.75%. The reduction comes as the Bank continues its efforts toward balance sheet normalization, aligning with the country’s economic trends and inflationary pressures.

The Bank noted that the Canadian economy grew by 2% in the first half of 2024, with growth projected at 1.75% for the latter half of the year. While consumption has grown, it is slowing on a per-person basis. Meanwhile, the unemployment rate was reported at 6.5% in September, with the labour market described as “soft,” especially for young people and newcomers to Canada.

The Bank expects the economy to recover gradually, forecasting GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026, driven by increased consumer spending, rising residential investment, and stronger business investments.

On the inflation front, the Consumer Price Index (CPI) has fallen significantly from 2.7% in June to 1.6% in September. The Bank’s preferred measures of core inflation are now below 2.5%, indicating that inflationary pressures have largely normalized. Shelter costs, while still elevated, are beginning to ease, and lower global oil prices have led to reduced gasoline prices, further helping to reduce inflation.

With the inflation rate close to the Bank’s 2% target, the decision to lower the rate reflects a broader strategy to maintain price stability while ensuring continued economic growth. The Bank hinted that further rate reductions could be on the horizon, depending on the economic outlook in the coming months.

How the Bank of Canada’s Rate Cut Could Impact the Sluggish Market

The Bank of Canada’s decision to lower its policy rate by 50 basis points to 3.75% may offer a much-needed boost to the Toronto real estate market, which has been experiencing slower activity over the past year. With mortgage rates tied closely to the Bank’s policy rate, this reduction could lead to lower borrowing costs for homebuyers and investors, potentially revitalizing the market.

How Will This Affect Buyers?

For many would-be homebuyers, the high cost of borrowing has been a significant barrier. With mortgage rates now likely to decrease following the Bank’s rate cut, this could create more favorable conditions for buyers looking to enter the Toronto housing market. The rate cut could encourage those who were previously on the sidelines to move forward with their purchases, helping to increase demand and stimulate sales activity.

Impact on Sellers

For sellers, this rate cut might also be good news. As borrowing becomes more affordable, the market could see a rise in buyer interest, leading to increased competition and potentially stabilizing home prices, which have seen modest declines in recent months. Sellers who were holding off might find this the right time to list their properties.

Long-Term Market Outlook

The rate cut comes at a time when Toronto’s real estate market has faced sluggish growth due to rising interest rates, unaffordability, and broader economic uncertainty. If the Bank of Canada continues to lower rates in the coming months, as hinted in its statement, it could further invigorate the market by making homeownership more accessible for more Canadians. However, the extent of the impact will depend on broader economic trends and whether confidence in the real estate market continues to improve.

Overall, this policy move could help mitigate the challenges faced by Toronto’s real estate market, providing the much-needed stimulus to reverse the trend of slowing sales and softening prices.