Bank of Canada makes quick decision to lower overnight interest rate

Jun 6, 2024 | Biz/Tech, News

The Bank of Canada announced the overnight interest rate will be lowered to 4.75 per cent on June 5.

This overnight interest rate has remained at five per cent or above since July 2023. This is the first time since March 2022 that the overnight interest rate has decreased.

The cut was followed by the European Central Bank which also cut its rate by 25 basis points to 3.75 per cent. It’s the first drop by the ECB since

In April, Statistics Canada said inflation had also slowed within Canada. Statistics Canada said in their April consumer price index (CPI) reported that inflation had slowed to 2.7 per cent.

“Year over year, prices rose at a slower pace in April compared with March in six provinces,” Statistics Canada reported on May 21.

The Bank of Canada (BOC) said inflation eased further in April, to 2.7 per cent. The bank’s preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum,” in its announcement on June 5.

Joseph Mete, a mortgage agent in Toronto, said this quick response from the BOC is unusual.

“Historically, the housing market lags in response to changes in key interest rates,” he said to Humber News through email.

Mete said although unusual, it is a welcome change for those looking to purchase or sell a house in the Canadian market.

“This rate cut is likely to further boost the average home price, reduce the average days a listing stays on the market, and increase the number of new listings,” he said.

The BOC said the new interest rate will support economic activity in Canada, as it has been increasing within the country.

“Consumption growth was solid at about 3 per cent, and business investment and housing activity also increased,” the BOC said.

The bank said all evidence points to an ease in inflation, meaning that monetary policing does not need to be as strict.

Although there is an ease in inflation, the bank said it will continue to monitor inflation reports and adjust itself accordingly.

“The Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour,” the BOC said.

Mete said he will be watching the market for growth and expects a significant change in the upcoming months.

“Ultimately, while I believe the rate cut was necessary for the Canadian housing market, I have concerns about its timing. Typically, the effects of a rate cut are felt within two, four months, but this time, we might see impacts as soon as one, two months,” he said.

The Bank of Canada said its next scheduled announcement for the overnight interest rate will be on July 24.

“The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR at the same time,” the BOC said.