The Bank of Canada has lowered its key interest rate to 3.25% and the prime lending rate to 5.45%. If you have a fixed-rate mortgage, you won’t be affected directly. However, this change could benefit you in other ways, particularly regarding other credit facilities and potential future purchases. For those with variable-rate mortgages, this is especially relevant; for example, if your rate was set at prime minus 1%, your new interest rate will be 4.45%.
Why This Rate Drop Matters to You:
1. Lower Borrowing Costs:
- If you’re considering buying a home, refinance or have an upcoming renewal, this could change your cost of borrowing and payment amount. Lower interest rates mean cheaper borrowing, resulting in reduced monthly payments on loans and mortgages.
2. Boost in Consumer Spending:
- With rates dropping, consumers are likely to spend more, stimulating the economy. This increased activity benefits local businesses and larger industries alike.
3. Encourages Investment in Housing:
- A decrease in interest rates often boosts the housing market. If you’re looking to invest in property or upgrade your current home, this 50bps drop is a consideration for many families and investors alike.
The Bigger Picture:
While the U.S. economy remains robust, with strong job growth and consumer spending, Europe and China are experiencing mixed economic conditions. The recent rate cut in Canada comes in response to a mild economic slowdown seen late in 2024. Fortunately, inflation is steady at around 2%, a rate the Bank of Canada aims to maintain.
What’s Next?
The Bank of Canada will continue to monitor economic conditions closely and is prepared to adjust rates again if needed to keep the economy on track. Stay tuned for the next economic outlook, set to be announced on January 29, 2025. We will provide commentary from our Chief Economist shortly.
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