For the second time in a row, Canada’s central bank has cut its overnight lending rate.
In its pre-scheduled July 2024 announcement, the Bank of Canada dropped the target for the overnight lending rate by 25 basis points to 4.50%.
While inflation remains above the Bank’s 2% target, it is expected that inflation will continue to ease as the global economy expands into 2026, bolstering the Bank’s decision to continue lowering rates.
In his opening remarks to reporters at a press conference following the announcement, Tiff Macklem, Governor of the Bank of Canada, cited that the risk that inflation continues to grow must be balanced against the risk that the economy and inflation could weaken.
“Looking ahead, we expect inflation to moderate further, though progress over the next year will likely be uneven. This forecast reflects the opposing forces affecting inflation. The overall weakness in the economy is pulling inflation down. At the same time, price pressures in shelter and some other services are holding inflation up,” said Macklem. “We are increasingly confident that the ingredients to bring inflation back to target are in place. But the push-pull of these opposing forces means the decline in inflation will likely be gradual, and there could be setbacks along the way.”
What does a second rate cut mean for homebuyers?
Despite the highly-anticipated rate cut made in June — the first drop to the overnight lending rate in four years — the slight decrease to lending rates last month did not encourage as many homebuyers back to the market as expected. However, with a second consecutive rate cut now in the books, a 50 basis-point-drop to lending rates may coax more homeowner hopefuls to reignite their purchase plans.
According to a recent Royal LePage survey, conducted by Leger,1 51% of Canadians who put their home buying plans on hold the last two years said they would return to the market when the Bank of Canada reduced its key lending rate. Eighteen percent said they would wait for a cut of 50 to 100 basis points, and 23% said they’d need to see a cut of more than 100 basis points before considering resuming their search.
“Our research shows that many buyer hopefuls have been waiting for a concrete signal from the Bank of Canada that the economy is moving in the right direction. A second cut to the overnight lending rate indicates just that, and with mortgage qualification thresholds continuing to come down, sidelined buyers may have the confidence they need to make their return to the housing market,” said Karen Yolevski, COO of Royal LePage Real Estate Services Ltd.
“We expect this will prompt a slight boost in activity in the short-term, followed by more robust buyer demand in the fall. In the meantime, some much-needed inventory has been building in major markets over the last few months, giving buyers more options to choose from. In addition to lower rates, this may also encourage more buyers to re-enter the market in the near future.”
The Bank of Canada will make its next announcement on Wednesday, September 4th.
Read the full July 24th report here.
1Royal LePage commissioned Leger to conduct an online survey among 1579 Canadians, 18 years of age or older, via Leger’s online panel, LEO. The data was collected from January 26 to 28, 2024. No margin of error can be associated with a non-probability sample (i.e. a web panel in this case). For comparative purposes, though, a probability sample of 1579 respondents would have a margin of error of ±2.5%, 19 times out of 20.
