Bank of Canada drops overnight lending rate by 25 basis points to 4.75%

After holding the overnight lending rate at a two-decade high of 5% for 11 months, the Bank of Canada has reduced its policy rate. In its pre-scheduled announcement for June, Canada’s central bank reduced the target for the overnight rate by 25 basis points to 4.75%.

Though inflation remains slightly above the BoC’s target rate of 2%, the total consumer price index has fallen over the past year, signaling that core inflation has slowed and will continue on a downward trajectory.

“Governing Council decided monetary policy no longer needs to be as restrictive and lowered the policy interest rate by 25 basis points to 4.75%,” said Tiff Macklem, Governor of the Bank of Canada, in a statement to reporters following the announcement. “We’ve come a long way in the fight against inflation. And our confidence that inflation will continue to move closer to the 2% target has increased over recent months. The considerable progress we’ve made to restore price stability is welcome news for Canadians.”

What does this mean for Canada’s housing market?

With the highly-anticipated interest rate cut now here, many rate-sensitive homebuyers will take this as a sign to move off the sidelines and back into the housing market. 

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. Ten per cent of respondents said a mere 25-basis-point-drop will prompt them to jump back in, 18% 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.

“The long-awaited cut to the overnight lending rate has arrived. The Bank of Canada held its key lending rate at a two-decade high of 5% for the past 11 months, and more than four years have passed since the last time that the rate was reduced,” said Phil Soper, president and CEO of Royal LePage. “Our research indicates that half of sidelined homebuyers in Canada plan to resume their home search plans once the bank rate begins to drop. This will no doubt spark activity and put upward pressure on home prices in the second half of the year.”

The Bank of Canada will make its next announcement on Wednesday, July 24th.

Read the full June 5th 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.