On July 24, 2024, the Bank of Canada announced another reduction in its target for the overnight lending rate, lowering it from 4.75% to 4.5%. This move, widely anticipated by financial markets, marks the second rate cut since the onset of the pandemic four years ago, bringing rates back to their levels from April 2023.

Economic Context and Reasons Behind the Cut

In its announcement, the Bank highlighted that while Canada’s economy saw growth in the first half of 2024, this growth was outpaced by population expansion. Consumer spending and the housing market are currently showing signs of weakness. Employment has been increasing, but at a slower rate compared to the growth of the working-age population, which is now expected to rise more quickly than previously anticipated.

The Bank of Canada forecasts that economic growth will gain momentum throughout the rest of 2024 and into 2025 as borrowing costs decrease. This easing of monetary policy is expected to boost exports, household spending, and both business and residential investments.

Inflation and Housing Market Challenges

The Bank remains focused on high shelter costs, which significantly contribute to inflation. Despite this, both headline and core inflation measures have moderated and are now close to historical norms.

In its Monetary Policy Report, the Bank also addressed several issues hindering housing supply growth, including:

• Municipal zoning restrictions
• High development fees
• Lengthy and costly permitting processes
• Shortages of skilled construction workers

Although excess supply in the economy is currently helping to lower inflation, the Bank is keeping a close watch on shelter and services costs, which are pushing inflation in the opposite direction. The Bank emphasized that future monetary policy decisions will be informed by incoming data and their implications for the inflation outlook.

Looking Ahead

The next scheduled interest rate announcement from the Bank of Canada is set for Wednesday, September 4, 2024. Additionally, the Bank will release its comprehensive economic and inflation outlook in the next Monetary Policy Report on Wednesday, October 23, 2024.

Stay tuned for more updates as the Bank of Canada navigates these complex economic conditions, balancing efforts to support growth while keeping inflation in check. I’m always here to help navigate the real estate waters and you can join me on Facebook and Google for the latest news!