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?

…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.